vmvE Prob].ens an export MY 5 — 19530VERDUC JUN 21^54 SIfr 1956 OCT 1 2 JflSl' Library Bureau CAT. NO. 1151-A University of California At Los Angeles The Library Form L I Soai TQ.'b UNIVERSITY OF CALIFORNIA LIBRARY Los Angeles This book is DUE on the last date stamped below. 9Cr ,_ 2 196? Form L9-32m-8,'58(5876s4)444 PROBLEMS IN EXPORT SALES MANAGEMENT HARRY R. TOSDAL, Ph. D. PROFESSOR OF MARKETING GRADUATE SCHOOL OF BUSINESS ADMINISTRATION HARVARD UNIVERSITY NEW YORK A. W. SHAW COMPANY CHICAGO LONDON 9 0 fi 5 7 HARVARD PROBLEM BOOKS USED IN THE CASE SYSTEM OF BUSINESS TRAINING MARKETING PROBLEMS Kij M. r. COrp^LAN'D PROBLEMS IN BUSINESS FINANCE Bij E. E. LINCOLN PROBLEMS IN SALES MANAGEMENT Hii H. R. TOSDAL RETAIL STORE MANAGEMENT PROBLEMS Bij D. K. DAVID PROBLEMS IN EXPORT SALES MANAGEMENT By H. R. TOSDAL //( Preparation PROBLEMS IN INDUSTRIAL ANALYSIS AND CONTROL Rll D. E. BIRCHELL PROBLEMS IN ADVERTISING By DANIEL STARCH PROBLEMS IN BANK MANAGEMENT By W. B. DONHAM Other Titles Will Be Published Later COPYRIGHT 1922 BY A. W. SHAW COMPA.YY PRINTED IN THE UNITED STATES OF AMERICA y (o3 CONTENTS Preface v Table of Problems ix Chapter I. The Field of Export Sales Management. . 1 Chapter II. Export Sales Organization 23 Chapter III. Research and Planning in Export Trade 100 Chapter IV. Export Policies — Policies Relating to Product 162 Chapter V. Export Policies — Policies Relating to Distribution 190 Chapter VI. Export Policies — Policies Relating to Prices and Terms of Sale 265 Chapter VII. Sales Methods 310 Chapter VIII. Management of Export Sales Force 359 Chapter IX. Foreign Branches 425 ^, Chapter X. Financing, Credits and Collections ) in Export Trade 456 ^ Chapter XI. Delivery of Export Orders 546 Chapter XII. Control of Export Sales and General Problems 656 Bibliography 687 Bibliographical Footnotes 695 Index 699 iii LIST OF FORMS FORM PAGE 1. The Kimball Company — 'First Pioposal for Organization of Export Department 49 2. The Kimball Company — ^Second Proposal for Organization of Export Department 50 3. The Crowell Company — Organization Chart 59 4. Merrill Company — Organization Chart 91 5. The Hight Company — ^Suggestions for Grouping of Trade Regions ir)l 6. Elden Manufacturing Company — Application No. 1 385 7. Elden Manufacturing Company — Application No. 2 386 8. Elden Manufacturing Company — Application No. 3 387 9. Elden Manufacturing Company — Application No. 4 388 10. Elden Manufacturing Company — Application No. 5 389 11. Circular Letter of Credit, Front 412 12. Circular Letter of Credit, Reverse 413 13. Letter of Indication 414 14. Savoy Shoe Company — Credit Report Form 486 15. Savoy Shoe Company — Credit Report Fonn — Reverse 487 16. Garfield Talking Machine Company — Foreign Drafts 534 17. Garfield Talking Machine Company — Banker's Acceptance 535 18. Garfield Talking Machine Company — Collection Instrument 536 19. Whitmore Rubber Company — Subscribers' Inquiry 538 20. Whitmore Rubber Company — Request of Bureau to Mem- bers 539 21. Whitmore Rubber Company — ^Bureau Report to Members.. 540 22. Whitmore Rubber Company — Supplementary Report 541 23. Kingsley Company — Forwarder's Functions 574 24. Hartman Rubber Company — Instructions to Forwarders. .576 25. Detailed Special Instructions Form 604 26. Dock Receipt 605 27. Letter of Instructions 606 28. Consular Invoice 607 29. Face of Export Declaration 608 30. Reverse of Export Declaration 609 31. Bill of Lading 620 32. Commercial Invoice 622 33. Certificate of Insurance 623 34. Reverse of Certificate of Insurance 624 35. Draft 625 36. Notification Letter to Customer 626 37. Form for Notifying Bank 627 38. Face of Insurance Certificate 629 39. Reverse of Insurance Certificate 630 40. Insurance Policy 634 41. Ocean Bill of Lading 641 iv PREFACE MANY American business men have been accus- tomed to regarding foreign trade as a branch of commerce governed by laws and principles differ- ing radically from those which apply to domestic trade. This seems to be due to two fundamental factors, the first of which is the lack of international viewpoint, which characterizes citizens of the United States. This provin- cialism is in part historical in origin, growing out of the nature of the economic development of the country. The vast resources of the country, the development of new enterprises, and the combined growth of older ones have furnished an opportunity for each younger generation which could not be equaled in foreign trade. There has been no economic reason why a young man should ex- patriate himself, at least no reason suflSciently strong to cause him to depart from the general custom of the young men of his class. The second reason for the misconcep- tion regarding foreign trade is due to the over-emphasis accorded to the differences between foreign and domestic trade and to the corresponding under-emphasis regard- ing similarities. The lack of international viewpoint is still a serious obstacle to the development of foreign trade, although the war has had an enormous influence in the direction of broadening the information of Amer- ica generally regarding foreign countries. In fundamentals foreign trade is the same as domestic trade. The broad considerations involved in building an export organization, in fixing the character of re- search and planning, in choosing correct policies and in conducting sales operations are essentially the same as those prevaihng in the home market. However, the nature and extent of the knowledge which the domestic sales executive may expect to find in the average recruit to the domestic sales personnel, whether taken from gram- vi PREFACE mar school, high school, a higher institution of learning, or from other concerns, is vastly greater than the knowl- edge which the export sales executive may expect to find. The result has been, first, a limitation of the number of available candidates for foreign trade positions; sec- ondly, a necessity of training such candidates as are ac- cepted; and, lastly, the development of an exaggerated idea of the differences between foreign and domestic marketing. Training for foreign trade should be funda- mentally the same as training for domestic trade ; though in the more specialized training, the examples and appli- cations of general business principles should be made with reference to foreign transactions. Export sales management should occupy the same place in the equipment of the export executive that domes- tic sales management does in the equipment of the domes- tic sales manager. Exporting is essentially selling outside the boundaries of the United States. It bears the same relation to importing that selling does to purchasing. There should be as clear-cut a division in the treatment of importation and exportation as is common between sales management and purchasing. In its approach to the general subject of export management, the present volume has no precedent to serve as a guide. My earlier conviction that the export manager to be successful must approach his business problems as any other business executive has been strengthened by contact with many leading export executives, while collecting material. Without exception, the executives whom we have ap- proached have received us cordially; they have given generously of their time and experience to help us in this undertaking. To them and to the friends of the school whose assistance made possible the necessary field work we express our deep appreciation. I am especially indebted to Mr. Cecil E. Eraser, who as special agent of the Bureau of Business Research has assisted me not only in the collection of material during various field trips but also in applying the experience of the Bureau of Business Research in the presentation of problem mate- rial. To the Director of the Bureau, Professor Melvin T. PREFACE vii Copeland, I wish also to express my thanks for valuable assistance; likewise to Dean Wallace Brett Donham, whose active support and encouragement are responsible for the present appearance of this volume. Mr. B. Olney Hough and Mr. Walter F. Wyman have also been ex- tremely kind in giving me the benefit of their criticism of a number of the problems. Lastly, much credit should be given to the writer's secretary, Mrs. Elsie Hight Tara- soff, whose efficient assistance at all stages has rendered the task much less difficult than it would othermse have been. H. R. T. Caml)ridgo, Massachusetts, July 12, 1922. TABLE OF PROBLEMS 1. Reddington Company — Location of Export Department 34 2. Nash Company — Splitting the Export Department. ... 36 3. The Northern Electric Company — Splitting Export Department between Plant and New York 37 4. The MacKusick Paint Company — Organization for Direct Exporting 39 5. Baer Manufacturing Company — Organization of Export Department 42 6. Kimball Company — Organization of Export Depart- ment 47 7. The Hammett Company — Committee Organization as Applied to Export Department 61 8. The Townsend Rubber Company — Functional Organ- ization of the Export Department 56 9. The Crowell Company — Organization of a Separate Export Company . . . .' 59 10. Lybrand Manufacturing Company — Export Commission Houses versus Export Association 62 11. The Reardon Saw Company — Withdrawing from Export Association under Webb Law 66 12. Winthrop Company — Cooperative Export Department; Combination Export Manager 69 13. Motor Accessories Corporation and Forest Machine Company — Adapting Export Organization to Product and Resources 71 14. Cotton Braid Associates — Division of Sales Organiza- tion by Territory or by Goods 73 16. American Export Corporation — Organization from Ter- ritory or Product Standpoint 76 1 6. The Export Executive 78 17. Hardee Hat Company — Developing Export Manager from Own Organization versus Securing Manager Outside 81 iz c PROBLEMS IN EXPORT SALES MANAGEMENT 18. Williamson Company- — Employing Foreign Regulation Expert 83 19. The Riley Company — Handling of Foreign Correspon- dence 85 20. Reardon Company — Dividing Line Between Domestic Sales and Export Departments 87 21. Merrill Company — Cooperation of Domestic Sales and Export Departments 90 22. Fiske Company — Advertising Agency vs. Development of Foreign Advertising Department 93 23. Leonard Company — Should the Export or Domestic Credit Department Handle Foreign Credits ? 95 24. Gray Hat Company — Relation of Export and Produc- tion Departments 97 25. Brackett Fire Apparatus Company — Field Trips 113 26. Gary Typewriter Company — Study of the Market.... 114 27. Rand Safety Razor Company — Market Analysis in Selection of Agents 116 28. Burbank Adding Machine Company — Desk Research vs. Field Research 124 29. The Self-Operating Scale Company — Market Analysis of Australia and Argentina 127 30. The James & King Company — Analysis of South Ameri- can Market for Photographic Material 130 31. Middle Western Association of Garment Manufacturers — Analysis of the Demand in South American Mar- kets for Women's Ready-made Garments 139 32. The Hight Company — Districting of Sales Territory. , 148 33. Pittsfield Paper Company— Establishing Quotas 154 34. Red Star Shoe Company — Planning Sales Districts, the Routing of Salesmen, and a Sales Campaign 158 35. Simplex Razor Company — Changing Product to Meet Foreign Demand 165 36. Talbot Electric Wire Company — Changing Product to Meet Competition 170 37. The White & Russell Company— Style Policy 171 TABLE OF PROBLEMS xi 38. Hollywood Typewriter Company — Policy as to Finish. 172 39. Federated Woolen Company — Handling of Cotton Tex- tiles and Other Allied Lines 175 40. Tower Company — Repair Service and Contract for Agents Furnishing Service 177 41. The Shedd Rubber Company — Service and Guarantee. 180 42. The Shaler Company— Brand Policy 182 43. Federated Paper Company — Registration of Trade- Marks 184 44. Williams & Knox Company — Policy of Export Commis- sion House 188 45. The Twitchell Company — Commission House versus Own Salesmen 201 46. The Mills and Marks Company— Distribution Policy.. 205 47. The Samuel Paper Company — Contracts with Export Houses 211 48. The Rollins Paper Company — Contract for Foreign Distribution 216 49. Stuart Company — Commission House vs. Combination Export Manager 220 50. The Logan Company — Choice of Methods in Export Selling \ 222 51. Baker-Greene & Company — General Importers as Agents versus Sale to Foreign Dealers 224 52. Nichols Company — Branch vs. Foreign Wholesalers... 227 53. Morrow Safety Razor Company — Manufacturers' Rep- resentatives 229 54. The Murray Company — Use of Wholesalers as Agents ; Wholesale and Retail Agents 231 55. Modern Oil Company — Question of Giving Up Native Agents in China 234 56. Bennett Manufacturing Company — Exclusive Agency. . 235 '57. Hartman Piano Company — Securing Agency for Pianos 237 58. Rand Smith & Company — Granting Agencies 240 xii PROBLEMS IN EXPORT SALES MANAGEMENT 59. Mathews & Wolfe Company — Exclusive Agency and Advertising 246 60. Kilton Typewriter Company — Essentials of Contract with Foreign Agency 251 CI. Houghton Cotton Mill — Exclusive Agency 267 62. Gardner Office Equipment Company — Completion of Contract with Foreign Agent 260 63. Caledonia Typewriter Company — The Appointment of Sub-Agents 261 64. The Vandermann Shoe Company — Determination of Price Level 269 65. Chandler Company — Price Competition 270 66. Guild Company — Adjustments 274 67. The Wolfe Company— F. O. B. versus C. I. F 276 68. Tlie Carlton Drug Company — Quoting Net Prices in Dollars F. O. B. Seaboard versus Quoting List Prices in Foreign Currencies C. I. F 279 (69. Southwest Cooperage Company — Quotation of Prices . . 290 70. Morrison Manufacturing Company — Uniformity of Selling Price 295 71. Cotton Braid Associates — Price Variation to Cover Credit Terms 298 72. McDermott Company — Fixed Prices versus Price Varia- tion by Salesmen 300 73. Calkins Talcum Powder Company — Cash Discounts.. 301 74. Calkins Talcum Powder Company — Quantity Discounts 303 75 The Morrow Safety Razor Company — Price Mainte- nance 306 76. Saunders Sewing Machine Company — Price Mainte- nance 306 77. The Camden Hosiery Company — Price Policy . 308 78. National Machine Tool Corporation — Choice of Selling Methods 321 79. The Madden Company — ^Developing New Territory. . 323 80. The Dunn Company — Clioice of Selling Methods .... 326 TABLE OF PROBLEMS xiii 81. Hamilton Oil Company — Additional Branches vs. Ad- vertising 327 82. Washington Motor Car Company — Foreign Advertising 329 83. Reingold Sewing Machine Company — Advertising Policy 334 84. Pembroke Office Equipment Company — Advertising by Principal or Agents 33g 85. Barcelona Talking Machine Company — Control of Foreign Advertising 337 86. The Gates Optical Company — Developing Export Sales by Correspondence 34O 87. The Rodgers Machine Manufacturing Company — Cata- logs for Foreign Trade 342 88. Federated Paper Company — House Organ 345 89. Volk Paint Company— Methods of Sales Stimulation . . 347 90. The Widlund Company — Selling or Leasing Textile Machinery okq 91. The Mellor Milling Company— Long-time Credits versus Shipping on Consignment 35 1 92. The Maddox Export Company— Dealing on Joint Ac- count 353 93. Cotton Braid Associates— Allocation of Orders and Credit Losses in Export Association 354 94.. Eastern Export Managers' Association— Qualifications of Export Salesmen ggg 95. Jefferson Automobile Company— Selection of Salesmen. 370 96. The Rush Oil Company— Application Blanks for Ex- port Salesmen 3,^4 97. Elden Manufacturing Company— Selection of Export Salesmen 0^4 98. Giles Paper Company— Should Native Salesmen Be Employed in Preference to Americans > 387 99. Volk Paint Company— Training of Salesmen 391 100. The Atlantic Electric Company— Training of Salesmen 394 101. Thompson Paint Company— Methods of Paying Foreign ^^^^«"^^" . 402 xiv PROBLEMS IN EXPORT SALES MANAGEMENT 102. Sandock Company — Pay of Salesmen 404 103. Morse Paper Company — Export Salesmen — Advance Territory Work 406 104. Wadswortli Company — Equipment of Foreign Salesmen 409 105. The Volk Paint Compan}'^ — Cooperation of the Export and Other Departments with P'oreign Salesmen. ... 415 106. Kagan Company — Handling of Salesmen 417 107. The Volk Paint Company — Stimulation of Sales Force 420 108. Volk Paint Company — Control of Salesmen 422 109. Marshall Ink Company — Retaining or Abandoning Foreign Branches 428 110. Waldron Piano Company — Establishment of Branch Factories and Assembling Plants 429 111. The Safe-Edge Razor Company — Incorporation of Branches 434 112. The Sawyer Company — Establishing a Foreign Ware- house 439 113. Fernald Sewing Machine Company — Stocks at Selling Offices 440 114. Russell Company — Closing of Foreign Office 443 115. Hoffman Oil Company — Powers of Branch Manager and Organization of Branch 445 116. Faxon Typewriter Company — Power, Duties, and Com-. pensation of Branch Managers 448 117. Gendron Press and Paper Company — Should Branch Managers Fix the Price .'' 452 118. Federated Paper Company — Transfer of Branch Man- agers 454 119. Garfield Talking Machine Company — Discounting Drafts versus Bank Loans 462 120. The Sanford Motor Car Company — Methods of Financ- ing Foreign Shipments 464 121. The Chapman Company — Policy Regarding Extension of Credit 470 122. The Lundstrom Company — Extending Credit Terms be- cause of Competition 473 TABLE OF PROBLEMS xv 123. Washburn Company — Curtailing Credit in Time of De- pression 475 124. Emerson & Company — Credit Information 477 125. The Jorgensen Shoe Company — Granting Credit Based on Capability of Foreign Dealers and Conditions Abroad 480 126. Savoy Shoe Company — Methods of Securing and An- alyzing Credit Information 484 127. Whitmore Rubber Company — Foreign Credit Associa- tion 492 128. Pike Company — Credit Insurance 496 129. Romanos & Garcia, New England Hardware Com- pany—Granting of Credit on Open Account Terms. .497 130. Arabian Steel Company — Cancellation of Letter of Credit 500 131. Harris Hardware Company — Determining Whether or Not Credit Should be Granted to Foreign Customers 504 132. The Eliot Compan^^ — Abuse of Credit 509 133. The Eliot -Company — Credit Procedure 512 134. Bradford Bolt Company — Handling Depreciated Ex- change Cases 515 135. Bryzlak & Company — Act of Protest 519 136. Wine Shooks — Statement of Claims 526 137. Grisby and Randall — Exportation of Coal 529 138. The Export Shoe Company — Handling Orders 550 139. MacLean Company — Routing of Orders 552 140. Denby Company — Packing Goods for Export 554 141. The Hood Adding Machine Company — Packing of Ma- chinery 558 142. The Murray Company — Changing Packing Methods.. 559 143. National Packing Machine Company — Methods of Packing 562 144. Reid Chemical Export Company — Inspection of Cargo 564 145. Thompson Roofing Company — Preventing Damage in Shipment 566 xvl PROBLEMS IN EXPORT SALES MANAGEMENT I AG. Parker Tire ALinufaetnring Company — Packing and Sliipping (ioods for Export 568 147. Kingsley Company — Freiglit Forwarding Service .... 572 148. Hartnian Rubber Company — Shipping Instructions . . 575 149. The Noonan Export Company — Avoiding Mistakes in Orders, and Contracts 578 150. Fales Tire Patch Company — Filling Foreign Orders . . 580 151. Page Export Corporation — Establishment of New York Warehouse 582 152. Ellwood Company — Bargaining for Ocean Freight and Insurance 684 153. Diamond Alkali Export Corporation b. Fl. Bourgeois — Bills of Lading and Insurance Certificates 586 154. The Starr Company — Collection of Insurance Claims. . 600 155. Harmonia Gramophone Company— Control of Sales.. 659 156. The Mott Company — Branch Managers' Reports .... 662 157. Holden Tool Company — Perpetual Inventory System.. 664i 158. Jewel Electric Appliance Company — Planning a Budget 667 159. Myers & Company — Continuing of Foreign Trade .... 674 160. Independent Woolen Export Corporation — Liquidating of Export Business 677 161. Tlie Baldwin Locomotive Works — Pushing Foreign Trade During Depression 679 162. Oilman Company — Establishing a Canadian Mill .... 681 163. The Kane Shoe Company — Discontinuing Canadian Plant 682 164. The Rockford Company — Government Action in the Ex- port Field 684 CHAPTER 1 THE FIELD OF EXPORT SALES MANAGEMENT THAT foreign trade is necessary to the welfare of nations has been more generally admitted by busi- ness men of our country during the past few years than ever before. While other nations have accepted this as a matter of course, the United States wiih. its vast re- sources and possibilities of development has felt less the need for international exchange of goods than nations not so richly endowed by nature. Foreign trade is influenced profoundly by political, social, and economic conditions throughout the worlds and the problems of readjustment after a world catastrophe have never been more fully reahzed and recognized than today. However, the fact that foreign^ trade involves manifold executive problems has often been obscured by the broader problems of inter- national relationships. Less attention has been paid to the problems of the business executive, who must try to carry on his business whether political, financial, or eco- nomic conditions are entirely to his liking or not. While it is essential that for his greatest success he should know the nature of mass movements and the progress of political and trade development, the immediate problems of his business enterprise are those involved in attaining the purposes of every business enterprise ; that is, making a profit.* *The basis of economic theory of international trade is to be found in Taussig, Principles of Economics, Third Edition, 1922; Volume I, Book IV; Marshall, Industry and Trade, Book II; and the more specialized works, such as H. G. Brown, International Trade and Exchange; and C. F. Bastable, The Theory of International Trade. All the general works upon foreign trade and exporting contain material regarding the benefits of foreign trade. Interesting discussions may be found also in the proceed- ings of the National Foreign Trade Conventions, especially the addresses of Messrs. Alexander, Lichtenstein, and Sconce at the 1922 Convention. 1 2 PROBLEMS IN EXPORT SALES MANAGEMENT The problems of foreign trade include all the problems of domestic trade complicated by the fact that every for- eign transaction must comply with the laws of two juris- dictions ; and secondly by the fact that adjustment must be liiade to greater differences between buyer and seller than exist in domestic transactions. The executive prob- lems of foreign trade may be grouped as follows : first, the problems of selling, including all those problems relating to the selling of goods and the utilization of such f acilita- tive agencies as exist to aid sale or delivery. This in- cludes the creation of selling organization and the opera- tion of that organization so as to secure a profit. The second group of problems includes those of buyers ; that is, problems of import management. The view-point is of course that of the purchasing executive located in an im- port house or in the import department of a manufactur- ing, wholesale, or retail concern. In addition to the problems of control there is the broad group of prob- lems relating to financing of foreign trade and the management of credit. Banking facilities exist primarily for the purpose of assisting commerce. Their effective utilization furnishes problems for sellers and buyers, but the management of such facilities so as to perform effec- tive service offers a series of problems which have not been fully comprehended. The problems relating to physical delivery of goods constitute a fourth group with reference to the management of transport and other facil- ities so as to bring about efficient delivery of goods in both import and export trade. The executive problem of shipping management, railroad organization and ojjera- tion all come under this general heading. In normal times the management of all these facilities is articulated so as to perform numberless individual operations with mini- mum unit effort, in spite of the resulting complexity of organization. Successful solution of the problems of buying and sell- ing in the international market depend in large measure upon full realization of the essential characteristics and the essential differences between various markets. A na- FIELD OF EXPORT MANAGEMENT 3 tive of one country has ordinarily no opportunity to ab- sorb the fund of information concerning other countries that he does consciously or unconsciously concerning his own. Proper management of foreign operations requires specific and detailed knowledge of foreign markets and foreign peoples and furnishes justification for specialized study of such markets. It is with the first of these groups of problems — namely, those concerning sellers — that the present volume is concerned. As the term is used in this volume, Export Sales Man- agement is that branch of sales management relating to the performance of marketing functions in transactions with foreign buyers. The point of view is the same as the domestic sales manager's, namely that of the execu- tive of the business enterprise. "While in many organiza- tions foreign transactions are handled by a department which is independent of the domestic sales department, the functions performed by each department are essen- tially similar in nature and the problems involved in the performance of those functions are of the same types. Export management refers, therefore, to the management of those agencies which are necessary for the perform- ance of the marketing functions in foreign trade. The prime function of the export department is that of sell- ing in foreign markets ; in this it differs from the domes- tic sales department only as to the field in which the operations are to be conducted. The success of the ex- port department in the performance of its selling func- tions is dependent in varying degrees upon the perform- ance of other marketing functions. The export depart- ment must arrange at times for the storing of finished goods, as well as for their movement into the hands of customers and the financing of sales within limits imposed upon it by administrative action. While the general regu- lation of finance and general financial policies are gov- erned by separate ofiicials or separate departments, the export department is profoundly affected by such limita- tions and by the policy which it finds necessary to adopt regarding credits and terms of sales in the development of the particular market. 4 PROBLEMS IN EXPORT SALES MANAGEMENT Export organizations vary widely, therefore, in the extent to which they perform the various marketing func- tions. Two basic reasons may be advanced for this situ- ation. First, the variation in the position of the export department in the business organization and the admin- istrative hmitations placed upon it by the board of direc- tors and their appointees naturally affect the scope of its operations and the methods of performing its functions. Secondly, specialized agencies exist and may be used to a greater or less extent by the export department for the performance of certain functions. The field of export man- agement is consequently ill-defined ; in fact, such study of management in foreign trade as has been made has usu- ally given much attention to export from the general or public point of view with a brief consideration of im- portation— in other words, a consideration of purchasing has been included with the study of selling. The impor- tance of import — both actual, as shown by statistics, and theoretical, as demonstrated in economic reasoning is such as to require more adequate study. The scope of export sales management is the same as that of sales management, including the performance or supervision of practically all the marketing functions — storing, risk-taking, financing, grading, selling, and de- livery,* The functions which would be performed by the individual organization would of course vary widely ac- cording to method of sale, financial circumstance of the concern, type of product, and other factors. It is evi- dent that the character of an export organization, *The marketing functions are the same in international as in domestic trade. While functional analysis of marketing has so far been confined to treatises upon domestic marketing, these discussions are helpfiil in the study of foreign trade. According to L. D. 11. Weld, American Economic Eeview, June, 1917, page 306, the nuirketiiig functions are assembling, assumption of risk, storing, financing, selling,, rearrangement, transporta- tion; according to A. W. Shaw, An Approac)^ to Business Probleins, i)age 157, the functions are (1) sharing tlie risk; (2) transporting tlie goods; (3) financing the operation; (4) selling or demand creation; (5) assem- bling, assorting, or resliipjiing the goods. P. T. Cheriugton chissifies nuxr- keting functions other than the prime function of selling as merchandising functions, including assembling, grading, storing, and transporting, and auxiliary — financing, assuming risk. Cf. also H. B. Vanderblue, American Economic Review, June, 1921, page 292 1 and C, S, Duncan, Marketing: Its Problems and Methods, FIELD OF EXPORT MANAGEMENT 5 which plans to sell typewriters to consumers in for- eign lands, will vary widely from that of the house exporting certain textiles, which it plans to sell through wholesalers. On the other hand, the small concern manu- facturing typewriters may adopt an organization which is quite different from that of a concern which is large, well established in the domestic market, and with ample resources to give it choice of method, to enable it to estabhsh branches, service stations, and subsidiary companies w^herever it may deem advisable. In essen- tials, how^ever, the differences between specific export sales organizations are the same as. those which prevail among domestic sales organizations. A small, poorly financed maimfacturing company, the bulk of whose re- sources is required for manufacturing operations, may find it to its advantage to shift the financial burden of direct selling and undertake indirect selling or refrain from foreign markets altogether. It is evident that many of the fundamental policies affecting export trade are determined not by the export manager, but by the funda- mental characteristics of the enterprise as to product, financial resources, and personality of executives; but mthin these limitations, the function of the export de- partment is to perform or to cause to be performed satis- factorily all the operations necessary to secure to the company a net profit from export operations. The export organization will consist of an export exec- utive and such subordinates and assistants as may be required by the nature of the work and the size of the concern, their work being divided upon a functional,, territorial, or other basis. If the manufacturing plant is located inland, the location of the export department becomes a matter of very considerable interest. There is fairly evenly divided difference of opinion among ex- port managers as to the balance of advantage between inland location of the export department at the plant and location of the export department at a port. Current practice of business concerns shows application of both solutions of the problem, although occasionally a com- 6 PROBLEMS IN EXPORT SALES MANAGEMENT promise in the nature of splitting the export department between the plant and the port is to be noticed. The concern, which is entering a foreign field and finds it necessary to engage in functional specialization, is usu- ally compelled to adopt more or less definitely one of two general courses of organization: first, the course of organization where the export operations are regarded as essentially sales operations of a nature similar to other domestic operations and where accordingly the functional executives should be responsible to the limit of their capacity for both export and domestic sales. That is, the sales manager becomes a sales manager for both foreign and domestic fields, the credit department handles both domestic and foreign credits, the packing depart- ment is not divided into export and domestic packing sections. In the formation of an export department termed a "built-in" export department, there is clearly the assumption that greater homogeneity is obtained by specialization according to functions than by specializa- tion according to area in which functions are to be per- formed. While in the large export departments the ''built-in" feature may imply merely an areal specializa- tion among subordinates rather than among superiors, there is no doubt that the built-in department presents a strong appeal for many business concerns, though the successful operation requires possibly greater knowledge and a broader type of mind on the part of more execu- tives in a business than might be required by the second type of export department called the "specialized" ex- port department. The separate export department may be located in the business concern as a section of the general sales depart- ment in charge of a sales manager, who supervises all the operations subject to the direction of the sales manager or other executives. Not infrequently the separate ex- port department is coordinated with the general sales de- partment. It is obvious that such a department provides the means for greater specialization, which may not be ail i:idvc^ntage. It implies the maiutenauce of a separate FIELD OF EXPORT MANAGEMENT 7 export executive and an export staff wltieh, for the small concern or the concern whose export trade is not devel- oped rapidly, implies an increase in selling expense and at least a period in which the profits of export trade will be consmned by costs of operating the organization. Within the export department there come all the ques- tions which confront the domestic sales department. There is a question of departmentalization — shall the work of the export department be divided according to market areas or according to functions? The relation of the export sales organization to other departments involves many questions. The necessity of sales research and market research in export depart- ments is clearly recognized; whether such research shall be carried on by the general research department, by the research department of the domestic sales organization, or by a special department remains to be settled. Like- wise, the position of advertising. Since in domestic organ- izations, advertising not infrequently is on a par with the sales department, the question logically arises as to the relation of the domestic advertising organization to ex- port advertising. The practice of companies shows the consolidation of export and domestic advertising in one department in some concerns and the division or special- ization in others. As for export credits, the argument is frequently raised that export credit problems differ so widely from domestic credit problems that a separate department must be formed for their management. The built-in department assumes that credit problems are essentially alike and that the credit department should handle both domestic and foreign credits. In the sepa- rate credit department there is necessity for close cooperation. Without close cooperation of credit and selling officials in the export department, the possibil- ities for loss in export trade are immensely increased. With proper cooperation and proper management, the experience of many concerns has demonstrated that losses in export credits are as low as or lower than those incuiTed in domestic trade. With reference to the finang- 8 PROBLEMS IN EXPORT SALES MANAGEMENT iiig of export sales, the export manager is usually con- cerned much more than the domestic sales manager with financial operations. The long terms upon which goods may be sold and the delays in collection necessitate in many cases recourse to banking operations for the financ- ing of export sales. For these the export manager is in many cases responsible within the limits set by the admin- istrative authorities. Export packing and shipping in- volve a large part of the so-called ''technique" of foreign trade; and in the past, the emphasis that has been laid upon the differences between foreign and domestic trade have related in no small measure to the differences in packing and shipping requirements for delivery beyond the borders of the United States. There is no denying that such operations are considerably more complicated than in domestic trade or that domestic arrangements have become so familiar that specialized knowledge need not be acquired for their utilization. In export trade the contrary is true. The difficulty of making adjustments once shipments are made imposes upon the export execu- tive unusual pressure toward care in all matters pertain- ing to the delivery of goods. With respect to export pack- ing and shipping the same questions regarding the rela- tion to the production department and to the sales depart- ment persist as in domestic organization. A much broader question, which always confronts the concern which has been engaged in domestic trade when it establishes an export department, relates particularly to the relation of the export department to the domestic sales department. From the viewpoint of the writer the export department is concerned with selling operations of the same type that occupy the domestic sales de- partment. There is no sufficient reason for the segre- gation of the two departments, except size t)f concern, lack of capacity and knowledge on the part of the higher executives, or personal reasons. With a suffi- ciently broad-minded general sales executive, export and domestic sales should be so managed as to bring about better results as a whole than where the two departments are segregated. Wherever there is segregation there is FIELD OF EXPORT MANAGEMENT 9 very clearly the necessity for careful coordination of activity. The fact that foreign trade may be looked upon as a stabilizing factor, as a compensation in dull domestic times for decrease in domestic business, brings with it also the danger that in a boom market in the domestic field the export trade v/ill be deprived of proper supplies by action of the domestic sales department. Long-run policy necessitates consideration of customers' good-will in the foreign field in precisely the same degree as in the domestic field. The problems of relation of the export department to the production department are always important because of the necessity of securing prompt delivery of sufficient quantities of product sold, but they are particularly important in concerns in which it is necessary to make changes in sizes, models, styles, finish, and containers for the foreign market. While the export department often feels that it should be able to control the type of product manufactured for export, there is clearly the necessity for compromising between the sales attitude which would comply with the customer's demand in every particular and the manufacturing point of view which desires standardization and efficient production. The export sales organization extends much beyond the home office or the plant in the United States. Al- though many houses have no field organization, unless the few salesmen may be termed such, there are other concerns having very extensive field organizations con- sisting in some cases of branch houses or offices ; in other cases, American manufacturers have established facto- ries in foreign countries. Some concerns find it advisable to establish warehouses and stock-rooms at strategic points. Such establishments, together with the salesmen who may travel from these points as headquarters, con- stitute a field organization the organization and mainte- nance and control of which present problems of consider- able magnitude. The ox{)ort manager, with the coopera- tion of his superiors, must first of all decide upon the con- ditions upon which it is advisable to establish a foreign factory or a foreign branch, Foreign taxes, the develop- 10 PROBLEMS IN EXPORT SALES MANAGEMENT meiit of foreign good-will, lower costs of production, and taritfs are among the numerous factors which may in- fluence decision, in addition to internal considerations affecting the general policy with regard to tield organi- zation. The sales manager in the domestic market is not often confronted by the cooperative sales organization as a substitute or supplement to his own sales organization. Under our laws certain types of cooperative or combi- nation sales agencies are forbidden as being in restraint of trade. In export trade, on the contrary, recent enact- ment has provided for such coml)ination organizations, whose legal forms, requirements, and possibilities are of interest to the export fraternity in general. Such com- binations are particularly attractive to concerns in highly competitive lines or to smaller concerns finding it impossible to build up an export organization with the volume of business at their command. Business executives have recognized more readily the necessity for research and analysis in directing export operations than for domestic operations, primarily be- cause they have not assumed that they knew so much concerning foreign operations. However, the careful planning in accordance with the information which can be secured for export trade is the exception rather than the rule, just as careful planning of domestic sales is exceptional. The research methods available in foreign trade include personal investigation of particular mar- kets and particular industries, and in general of all the points upon which the export manager wishes to be in- formed in order to conduct business intelligently. For- eign trade experts, who act in a consulting capacity, furnish another general source of information and fund of experience. By correspondence and questionnaires it is possible of course to secure information within limita- tions of such methods. Printed and current sources of information, library research, furnish by far the greatest fund of fact and opinion upon which the export executive may draw, The printed sources of information incJudQ PlELD OF EXPORT MANAGEMENT li books, periodicals, pamphlets, published by private indi- viduals, authorities and alleged authorities upon particu- lar subjects, by business houses as part of general ser- vice, and particularly by the government through the agencies which are entrusted with the functions of fur- nishing information upon trade conditions which the indi- vidual concern is not in a position to gather economically or intelligently. The research activities of the individual business en- terprise should aim at securing for its executives in- formation which will be necessary and useful in intelli- gent planning and operation. Specifically, the export manager wishes to be informed and should be informed upon the suitability of his products to the particular markets in A\hich it is proposed that they be sold, their suitability as to quahty, their durabihty (particularly under var^dng climatic conditioiis and with respect to the service for which they are intended), their style (as to conformity with national custom), their uses with respect to conditions in countries different from our oa\ii, and the reaction of dealers and consumers toward the goods. Not only must he have the data as to present products, but he must also know what are the selling points and which of these are the most effective appeals for particu- lar markets. The shipment of the product for long dis- tances under conditions which are entirely different from those in which shipment is made in the United States requires special care in securing facts upon which to base plans for containers and methods of delivery. In the second place, the export manager should be informed upon the demand for his product in foreign countries the actual and the potential demand. In determining such demand there are numerous factors which are of importance — the purchasing power of the people, their customs, the character and size of population. Competi- tion in international trade is of such a nature that no American concern has a proper picture of the market unless he knows the sort of competition which it will meet. Research to determine the character and force of competition is therefore an essential part of the market 12 PROBLEMS IN EXPORT SALES MANAGEMENT aiiah\sis. In the third place, the export manager must have sufficient data on hand to determine not only his general policy concerning channels through which he shall distribute his goods, but also the selection of con- cerns which he wishes to approach as agencies or as dealers or representatives for his line in the various parts of the world. Such research is of highest im- portance and the data w^liich may be secured upon cus- tomers is meager enough. Any competent export man- ager will vouch for the fact that care in the selection of agents and agencies is a wise precaution against losses, which have been all too frequent in the past. The data furnished by research activities should be used not only in making decisions from time to time, but also in planning sales operations in export fields. The necessity for planning needs no comment. The distance from buyers in ditferent parts of the world increases the need for careful planning of all parts of sales operations, so that there is a minimum of friction and of adjustment. Long-run plans are necessary for proper development of export trade. The export manager must expect that in the ordinary course of events a profitable business may not be built up for a number of years. Connections must be made, experiments must be tried, good-will must be built up, and only by the long-run plan can any company realize fully upon its initial investment. Long-run plans should not be inflexible, however. There may be many unforeseen things necessitating changes in the plan, but it is evident that companies with long-run plans will not adopt policies which will bar future progress, instances of which are only too numerous particularly in connec- tion with long contracts with exclusive agencies. The necessity for research and planning involves sometimes a question of separation of planning and performance — a question of organization frequently, because it is often stated that the research and planning type of mind is not the executive type of mind and that best results may be secured by separating the planning from perform- ance, assigning men chosen with care for each function. FIELD OF EXPORT MANAGEMENT 13 The export manager must be a plainiiiig official, sales and operating official, but lie is confronted largely with the major plans or the master plans as contrasted with the detail planning, which in some export departments is carried on by a planning division. The major plan- ning involves such matters as the determination in ad- vance of time of sales campaigns, the opening of new offices, entrance into new markets, etc. Detail planning includes planning mth reference to the performance or carrying out of major plans. The districting of sales territories and the routing of export sales force may be logically considered a phase of sales planning. It is necessary for best results to choose such sales districts, when the world is the field, as have characteristics in com- mon and which can best be worked by salesmen of partic- ular qualifications. The necessity for routing the sales force needs no comment ; much detailed data and knowl- edge are needed. Transportation factors, length of time needed to consummate sales, and customs of particular countries all have their bearing upon the routing of sales- men. For control purposes a definite routing and careful reporting are absolutely necessary. From another point of view, planning is necessary to secure the best results from any foreign advertising or sales promotion work. Correlation of such work \vith the visits of the salesman, proper follow-up of direct advertising,, proper handling of sampling, and careful timing of sales efforts are in- volved in the planning which increases the results of the sales methods chosen. With the nucleus of an organization and a basis of fact, the export manager or other export executives are in a position to determine at least tentatively such export sales policies as have not already been determined by the administration. The necessity for definite export to pre- vent vacillation, to bring about uniformity of treatment of customers, and to avoid the need of decision upon re- curring sets of circumstances are obvious. The results of absence of policy are equally obvious and have been all too frequently illustrated in the experience of Ameri- 14 PROBLEMS IN EXPORT SALES MANAGEMENT can exporters. The variety of matters upon which policy should be formulated may be grouped under five head- ings : first, those policies which relate to the product ; secondly, those policies which relate to channels of distri- bution; thirdly, price policies; fourthly, credit policies; and, lastly, the general policies toward customers. Export policies are determined in part by administra- tive officials, in part by the export executives. The financial circumstances of the concern and its type of product will sometimes lead inevitably to certain policies. On the other hand, in most matters there is a considerable range of choice, and particularly in separate export de- partments the export manager is given much liberty in the determination of policies to be put into force. As in domestic trade, it is important that the policy should be carefully chosen and as carefully put into operation. A good policy badly executed may be worse than no policy at all. With regard to the product, the first question of policy and one which confronts many concerns in the ex- port trade is the general policy regarding the shaping of the i)roduct to foreign demand. The policy of German manufacturers in meeting foreign whims, no matter what their importance and no matter how absurd, is to be con- trasted with the policy of manufacturers in other na- tions who all too frequently attempt to force upon foreign buyers (with indifferent success) the products which do not meet their requirements. There are conspicuous ex- amples of success among firms which have adopted the policy of making* no variation in their products for for- eign demand. It is evident that no definite rule can be laid down and that the policy must be determined by each company, but it is just as evident that careless disregard of the real demands of consumers, whether in foreign countries or in the domestic markets, will lead to smaller sale and be disastrous to the manufacturer in the long run. Another jjolicy, that regarding the (piality of goods, is one of particular importance to many manufacturers be- cause of the widespread opinion that policy of quality FIELD OF EXPORT MANAGEMENT 15 was unnecessary in foreign transactions. Carelessness in filling orders, the dumping of seconds upon foreign cus- tomers by concerns which would think of no such thing in the domestic market, is too well known to require com- ment. It was a mistaken policy. Styles and models for foreign trade require particular consideration. The con- cern whose product is affected by the style element must very soon adopt a policy and a definite means of carrying it out. Standardization and simplification as production policies will frequently encounter the opposition of for- eign demand for variation from standardized styles of products. The foreign sales department must therefore strike a compromise which will bring about the greatest net results and the most profitable long-run development. As in domestic trade, the guarantees of product (either implied or expressed), guarantees of quahty or quantity present their problems to the sales manager- likewise, the service required for articles of a more or less mechanical and complex nature. The specialty manufacturer and the manufacturer of branded staples must concern him- self very soon in the development of his foreign trade with trade-mark and brand policy. He must determine whether he will use brands and trade-marks in foreign trade, whether the brands and trade-marks to be used are to be the same as in domestic trade or are to be varied according to markets. The manufacturer must decide whether he will make private brands for foreign buyers, whether he will register his trade-mark in all cases to prevent pirating, a practice which is by no means uncom- mon. Some of the same questions come up regarding patents. Shall the manufacturer adopt the poHcy of registering his patents in all cases or not? Among the most difficult questions which the export executive must settle are policies conperning channels of distribution. In many cases, the nature and size of the export organization will depend upon the policies adopted and the adoption of such policies becomes a matter for administrative action, an early requirement in the con- 16 PROBLEMS IN EXPORT SALES MANAGEMENT duct of export business. There is, first of all, the neces- sity of determining the choice of policy as between in- direct and direct exporting; that is, between the policy which would turn a large part of the marketing function including selling over to independent middlemen, as con- trasted to the policy whereby the concern carries on trans- actions directly with foreign buyers of one class or an- other. However, more frequently than not, the concern which sets up an export department to initiate and exe- cute transactions with foreign buyers will determine its policy with reference to particular markets rather than a general policy which would recpiire direct export to all parts of the world irrespective of their characteristics. Conseciuently, we find that manufacturers may sell through export merchants or through export commission houses at the same time that they are selling direct to buyers in other markets. It need not be repeated that the general considerations affecting determination of distribution policy are much the same in foreign as in domestic trade. Adherence to the polic}^ of indirect ex- port involves smaller financial responsibility, smaller risk, but also looser connection with markets and less aggressive selling of particular products. Likewise in selling to dealers in foreign countries, problems of policy arise. The difficulties which develop in selling to two or more classes of dealers, one of which is accustomed to purchase from the other, have their counterpart in domestic trade. The exclusive agency policy presents more difficult problems, because the factors of distance, insufficient knowledge concerning agents, and looseness of control bring it about that satisfactory relationships with exclusive agencies are attained only as the result of utmost care and consideration in both selection and han- dling of agents whenever the policy is adopted. The peculiar dangers in exclusive agencies, due to competi- tion of natives of other countries, have been pointed out very recently by the Bureau of Foreign and Domestic Commerce. Aggressive selling policy in foreign trade must include aggressive policies and methods assisting FIELD OF EXPORT MANAGEMENT 17 the dealer to deal profitably in a manufacturer's line. The manufacturer nmst therefore determine whether he will cooperate with distributors and whether in his par- ticular line such policy of cooperation is necessary. Where the policy of establishing branch houses has been adopted, organization questions arise and questions of general i:)olicy regarding relations between branch house and headquarters. Amoxg export traders there seems to be less miscon- ception as to the imi)ortance of price policies than char- acterizes domestic commerce. The export manager must determine, first of all, his policy as to price levels. Shall foreign price levels be lower or higher than domestic levels! For certain types of goods, international com- petition will determine the maximum price which can be obtained. For other types of goods, the manufacturer will enjoy a certain monopoly and mil fix his prices with reference to the extent of demand, his own costs, and other factors. The policies of concerns regarding quo- tation of prices may work favorably for or militate against the success of the export department. Under present conditions there is always the problem of policy to be determined with regard to quotation in foreign currency, as contrasted with quotation in dollars ; further- more, the quotation of delivered prices, prices f . o. b. port, prices including invoice cost, insurance, freight or vari- ations. The general desires of customers and the tradi- tions of particular trades will be very large factors in determining the policy of an export department. The question of quoting the net price, rather than the list price, with the correlative question of trade discounts must likemse be solved. Ticklish questions of policy are involved in establishing a relationship between the prices to be quoted to jobbers, to retailers, to so-called "im- porters," and to consumers. Not only must the relation- ship be established, but a policy must be established with regard to uniformity of prices within each class. Shall variation in price be made for greater credit risk f Shall 18 PROBLEMS IN EXPORT SALES MANAGEMENT prices be shaded for one and increased somewhat for another under certain conditions, even though both con- cerns are engaged in the same type of business and sell- ing to the same type of purchaser? The quantity dis- count presents the same problem as in domestic trade, though the acuteness of the objections of some classes of trade to quantity discounts has not as yet appeared in foreign trade. Maintenance of resale prices in foreign trade becomes of course a matter of agreement between dealers and export department. Price-cutting in related markets may have disturbing effects; it seems to be no more possible to enforce maintenance of resale prices in foreign than in domestic trade. More important are guarantees against price decline, the period elapsing be- tween order and shipment and between shipment and sale to consumer being of such length that guarantees possess peculiar dangers wherever they are given. The customs of competing nations, the needs of partic- ular markets, the financial circumstances and policies of the individual concern must be reconciled in deter- mining the credit policy in foreign trade. Credit losses in foreign trade, when well managed, are no greater and some concerns show smaller losses than in domestic trade ; but there is much muddled thinking upon the whole matter of credit policy. During the past few years, cred- its have been closely bound up with policies regarding returned and rejected goods, cancellations of orders, and claims and allowances. While each case will be judged to some extent upon its merits, the export manager fre- quently finds it advisable to determine upon a policy which will apply to the majority of cases. Given a sales organization, the information necessary to operate it having determined policies, the problems remaining in export sales management deal primarily with the conduct of sales operations by the organization in accordance with information previously gathered and policies previously determined or determined as occasion arises. The selling process in export trade includes the FIELD OF EXPORT MANAGEMENT 19 same steps as the selling process in domestic trade, but the selling process wherever it is performed must take account of the buyer; and in foreign trade the buyer presents many variations from the types mth which the sales manager is familiar in the domestic market. Furthermore, in the conduct of sales operations, in sell- ing in accordance mth policies of the firm, foreign buyers are not to be grouped together. It is evident that Far Eastern will differ from South American buyers, just as domestic differ from Australian buyers. The methods utilizing various means of selling therefore must be chosen according to the characteristics of classes of buyers, and successful methods in the domestic market may or may not be successful in foreign markets. However, the means of selling at the disposal of the ex- port sales executive — personal solicitation, advertising in its numerous forms, samples, correspondence, investment — are essentially the same as in the domestic market, but personal solicitation must be adapted to the market in which it is used. Advertising to be effective must be adapted to the classes to which appeal is to be made. The tone, makeup, and style of correspondence must be varied according to the market. While for raw materials of certain types exchanges exist, just as for cotton in this country, and while for other types of products there are auctions, competitive bidding, and government offerings, yet these are but variations of the general means of selling mentioned above. The forms of adver- tising used in foreign trade are as numerous and varied as those employed in domestic trade. The uses of adver- tising as a means of creating consumer demand or con- sumer acceptance, as a means of creating good-mil among prospective dealers, require careful study of foreigii markets. The choice of medium, the size of the advertis- ing appropriation, the language in which the advertise- ment is to be written, and the preparation of copj^ are problems which require careful study of a nature which is too seldom exhibited. The forms of personal solicitation are of much the same character as those used in domestic trade — regular 20 PROBLEMS IN EXPORT SALES MANAGEMENT salesmen, combination salesmen carrying the lines of two or more manufacturers, demonstration salesmen, agency inspectors, and missionary salesmen performing the selling function in one way or another, either working for the purpose of securing immediate orders and laying the foundation for future orders or for one of the two purposes. In the management of salesmen, questions of selection, training, and compensation are no nearer solu- tion than in domestic fields, while supervision and control are even more difficult. The distance factor and difficulty of communication lend especial importance to correspon- dence and direct-mail methods. As in advertising, extreme care is necessary to avoid waste. The use of samples in developing export trade is in many lines practically uni- versal. The prevailing custom has given rise to abuses and to problems which the export manager must work out carefully. The export executive is therefore con- fronted, first of all, with the problem of selecting the means which he shall use in taking orders of his goods; secondly, of selecting such other means as may be advis- able to build up good- will and foundation for future sales ; third, he must so correlate the various means which he uses as to secure maximum results A\dth the minimum of effort. ParticujjAR importance attaches in export sales man- agement to problems of financing and delivery, for it is here that many of the technical phases of foreign trade are found which lend so much of the air of mystery to the novice. In the export credit depart- ment there must be devised a system :iPor collecting such credit information as can be secured upon applicants for credit and for passing intelligently upon such applica- tions in the light of this information. Since the terms upon w^hich credit is granted are frequently much longer than in domestic trade, since purchases are in larger amounts, and since at best funds are tied up in export orders for a considerable length of time, many concerns find it necessary to avail themselves of banking facihties in order to carry on a larger business than their active FIELD OF EXPORT MANAGEMENT 21 working capital will allow. The financial requirements for conducting the export business will depend upon the terms of credit offered, the volume of trade, character of competition, and general business conditions. The ser- vices of the l)anker and the exporter in financing imports consist sometimes of collection of drafts, sometimes dis- counting drafts, in other cases advancing upon drafts. The services of banks may not stop here. In their work of collection, in their desire to increase the amount of their business, they may carry on many collateral services of considerable importance to the individual exporter. The export manager, however, must be informed as to the varying degrees of security which he may be able to obtain by means of the many variations in terms current in foreign export and import transactions. These run the gamut from cash in advance to open account, through cash against documents at port, cash against documents at point of destination, etc. Likewise, in the handling of the export order and in the operations connected with its delivery, special technical information is necessary. The policy with regard to making quotations has been mentioned above. The vari- ous methods of making quotations in foreign currency, such as figuring c. i. f. quotations and the use of cables in making quotations, offer problems in many cases of a complex nature. The export order in its various forms, its characteristics, its treatment in acknowledgment and interpretation will in the smoothly running organization require little attention from the export executive. In the packing of goods for export, the determination of size and character of containers must be made ui)on the basis of a variety of factors which do not apparently enter into the solution of such problems in domestic trade. The invoicing of goods to foreign buyers, its character- istics, the order system, the methods of shipment, the documentation of shipment, the details of compliance vdih foreign regulations, marine insurance, and the like present the appearance of extreme complexity to the beginner, and even in experienced organizations require 22 PROBLEMS IN EXPORT SALES MANAGEMENT care to avoid costly error. However much stress we may lay upon accuracy in such matters, the knowledge of the technique of foreign trade is never more than a knowl- edge of details. As such, it should be accorded its proper place as essential for the smooth operation of an organ- ization ; it should not be regarded as a substitute for or as a proper basis for business judgment. The knowledge of commercial and shipping documents no more makes a man an export executive than the technical knowledge possessed by a billing or shipping clerk in a domestic concern makes a domestic executive. In accordance with our conviction that the executive viewpoint can best be developed by a study of the prob- lems met in business, the following sections present a series of cases based upon the experience of concerns en- gaged in export trade. Problems are grouped as follows : PROBLEMS IN EXPORT ORGANIZATION. RESEARCH AND PLANNING IN EXPORT TRADE. EXPORT POLICIES POLICIES RELATING TO PRODUCT. EXPORT POLICIES POLICIES RELATING TO DISTRIBUTION. EXPORT POLICIES POLICIES RELATING TO PRICES AND TERMS OF SALE. SALES METHODS. MANAGEMENT OF EXPORT SALES FORCE. FOREIGN BRANCHES. FINANCING, CREDITS AND COLLECTIONS. CHAPTER XI. DELIVERY OF EXPORT ORDERS. CHAPTER XII. A. CONTROL OF EXPORT SALES. B. GENERAL PROBLEMS. Although the effort is made to give a certain amount of background in each problem, supplementary readings will l)e found helpful. These are indicated in the frequent bibliographical references in the footnotes. CHAPTER IL CHAPTER in. CHAPTER IV, CHAPTER V, CHAPTER VI, CHAPTER VII, CHAPTER VIII, CHAPTER IX. CHAPTER X, CHAPTER II EXPORT SALES ORGANIZATION ORGANIZATION for selling in foreign markets pre- sents precisely the same problems to the executive as organizing for the home market. The organiza- tion must be of such size and character as to perform efficiently the work required of it and yet not so large that the efforts of each member of the organization are not reasonably occupied in doing those things for which he is best fitted. The organization must possess a degree of flexibility to enable it to meet without disruption not only the day-to-day variations in the volume of work to be done but also the periodic and cyclical variations in the volume of business to be transacted. It is obvious that the export organization will vary with the extent and nature of the functions to be performed. It is equally clear that the extent and nature of functions to be per- formed will depend in part upon the portion of work performed by agencies outside the business organization. Every exporter must therefore be familiar with the ex- ternal organization of foreign trade, learn the possibil- ities of shifting in part some of the marketing functions to the specialized agencies which exist for that purpose.* *Descriptions of the external orgauization of foreign trade are to be found in the general ■works upon foreign trade, particularly those of Euro- pean origin. The description in Dr. Joseph Hellauer's Welthandelslehre, paragraphs 30-79, is undoubtedly the most complete. The description in The Theory and Practice of International Trade by A. J. Wolfe, Chaps. III-IX, resembles this very closely. More recent and more readable is J. Anton De Haas's, The Organisation of Foreign Trade, q.v. Chapters VIII and IX of B. Olney Hough's Practical Exporting, contain supple- mentary information. See also Einaigl, Eandhuch der Export Praxis, page 1; Clerget, Manuel D 'Economic Commercialc, pages 115, 391; Dude- ney, Exporters' Handbook and Glossary, Chapters II, IV-IX and XIII, 23 24 PROBLEMS IN EXPORT SALES MANAGEMENT The commercial organization for international distri- bution of goods consists of middlemen, facilitative agencies of various types, in institutions all of which in their present form are the results of centuries of devel- opment.* Their progress may be traced step by step from ancient and mediaeval times when international merchants performed for themselves all the operations incident to the marketing of goods up to the present time when a complex organization may stand between the merchant or manufacturer and the ultimate consumer, an organization necessitated by the enormous increase in the volume of trade, the number of articles which enter into the international commerce, and the development of more distant markets. Yet with the exception of those agencies designed to meet requirements of laws placing restrictions upon freedom of international commerce, each factor in the international organization finds its counterpart in the domestic market. Any system of distribution has as its objective supply- ing immediate or intermediate consumers with goods. It is the consumer who, over any considerable period of time, determines the character of the goods which will be produced. Taking into consideration factors of environ- ment and customs, the foreign consumer's influence upon distribution and methods of manufacture differs little *Hooper and Graham, on page 7 of their Import and Export Trade give the following classification: "The persons engaged in tr;ide may be ronghly classified into Producers, Distributors, Intermediaries, and Auxiliaries. r Growers of tea, cotton, wheat, wool, etc. Producers J. Manufacturers of goods. [ Makers of machinery, etc. {Merchants. Warehousemen (another name for nier- chants). Eetail tradesmen. (Agents or factors. Brokers (bill, exchange, ship, insurance, wool, corn, etc.). (Bankers. Railway companies. Shipowners, etc." EXPORT SALES ORGANIZATION 25 from that of the domestic consumer. Any sound market- ing policy will start with a study of the consumer. As in the United States, for many types of manufac- tured goods the retailer stands closest to the consumer, purchasing in lots of size for resale in small units. The retailer exists in foreign countries, and examples of all the types found in the United States may also be found in foreign countries. The department store is found in South America, China, England, France, and other countries as well as in the United States. The chain store is prominent in many European countries. Spe- cialty stores are not lacking in all the larger cities throughout the world. Retail hardware, grocery, jewelry, and dry goods stores exist abroad as well as here. In many of the less developed sections of the world the most common type of retailer is to be compared to the general store, which still exists in some parts of the United States in the less thickly settled communities and which has played a large part in the merchandising de- velopment of the countr3\ The relationships between the various types of stores and the attitude of unit stores to department stores are much the same as in this countr3\ While the largest retailers purchase from the manu- facturers and sometimes from general importers and import on a considerable scale on their own account, smaller retailers as in the United States depend in many staple lines upon the jobbers or wholesalers who are in most cases importers. While some of the general im- X3orters in certain countries sell only to wholesalers, it is more common for general importers to be likewise whole- salers selling to retailers. In not a few cases the whole- salers also have retail establishments; this combination brings with it certain important problems in connection with agency representation for American manufacturers. The importer in the foreign country, whether he be a large retailer, a wholesaler, or a general importer, may purchase his goods from either a middleman or a manu- facturer in the United States. This middleman may be an export commission house located in one of our ports or 26 PROBLEMS IN EXPORT SALES MANAGEMENT an export mercliaiit. He may be a manufacturer's agent selling tlie products of a selected group of manufac- turers for whom he has export representation. A fourth form is the cooperative selling agency, possibly one formed under the "Webb-Pomerene Law. Eeversing the point of view, we see that the exporting manufacturer may sell through middlemen located in this country, to a middleman located in the foreign country (factor, general importer, broker, wholesaler, or re- tailer), or he may sell to the consumer. The chain of distribution utilized by the individual manufacturer will be determined partly by the customs of the particular market and partly by the policy of the manufacturer. While manufacturer-to-consumer may be the most direct method of distribution, the distribution of large volumes of product in this way requires the most complex organ- ization from the view-point of the manufacturer. The international trade organization for raw materials differs somewhat from that for manufactured products, just as the domestic market organization for raw cotton or grain differs from that for the domestic distribution of manufactured products. Upon the commodity ex- changes of Europe are sold American cotton and Ameri- can grain for the account of American exporters. Brokers and commission men perform the same functions for dealers as in purely domestic transactions. The prob- lem of selling staple raw materials becomes ordinarily a matter of price adjustments to demand and supply fac- tors and the problem of physical distribution. The func- tions to be x^erformed are the same as with manufactured products, but the emphasis upon particular functions dif- fers greatly because of the existing demand for the com- modity which makes it a staple. In the foreign trade organization there are also many facilitative or auxiliary institutions and persons, each assuming a part of the marketing functions connected with the distribution of a product. In risk-taking there EXPORT SALES ORGANIZATION 27 are tlie insurance companies and the agencies for the purchase and sale of insurance — insurance agents, in- surance brokers, and the like. In the financing of sales, banking institutions of various sorts, institutions for collecting and disseminating credit information, institu- tions for the guarantee of foreign credits, and such spe- cial agents as compradors all assist in the extension of credit in international trade. In the delivery of goods, in addition to the transportation companies (rail and water), there are freight forwarders, steamship and freight brokers, customs brokers, inspectors, and others. For the storage of goods there are provided general warehouses and warehouses of special types as well as bonded warehouses. Without going into the functions of all of these factors in foreign trade organization, one will quickly draw the conclusion that the internal organization of a foreign trade department will depend in no small measure upon the decisions of executives with regard to the utiHzation of the various available factors. It is evident that a concern which sells to export commission houses exclusively needs but a small organization as compared to the concern which sells through its own branches direct to retailers in many parts of the world. It is evident that the organization of a concern which uses freight forwarders for the actual shipment of goods ^^dll differ m some respects from the organization of a concern which handles all the details of shipment. Job analysis of an export department would show therefore not only what duties were performed by each member but also the functions performed by the department as a whole and the functions which were shifted to the specialized agencies. The following outline and questions dealing ^dth the organization of the export sales departments in individ- ual concerns indicate that the types of organization prob- lems with which the export sales executive has to deal are very similar to those confronting the manager of domestic sales. 28 PROBLEMS IN EXPORT SALES MANAGEMENT A. Location op Export Department. 1. Inland location at plant versus port location; splitting be- tween plant and port. Where shall the export department be located — at the plant or at the seaport? Which seaport otters greatest advantages? What are the advantages and disadvantages of seaboard location? Of location at inland plant? To what extent will decision upon location depend upon tj^pe of product to be sold and customs of buyers ? When decision has been made to locate at port, how ex- tensive need the organization at the plant be? 2. Location of branches. If it is found advisable to establish branch offices, where should they be located ? What considerations should determine the choice of location ? 3. Location of warehouses. Where should Avarehouses be located if separate from branches ? Is it advisable to use public warehousing facilities, lease warehouse buildings or portions of buildings, or build warehouse facilities particularly for the use of the concern ? B. Organization of Personnel. 1. Types of organization — the export department as part of the business organization versus the separate export selling company. Under what conditious is it advisable to establish a separate export sales company to handle export transac- tions ? In what respect do organization problems of such sepa- rate companies differ from those of the export organiza- tion as an integral part of the individual business ? EXPORT SALES ORGANIZATION 29 2. Built-in versus separate export department. What are the characteristics of each type? What relation does the built-in department bear to the other departments? What is the relationship of the separate export department to other departments ? Under what conditions is the separate export department to be preferred to the built-in department 1 3. Line, line-and-statf, functional, and committee types of organization. Which form possesses the greatest advantages for the export department of the individual firm? To what ex- tent can the advantages of these forms be secured in a small enterprise ? What changes are required to remove difficulties in established concerns due to overlapping of authoritj'' and incorrect organization "I Is committee organization desirable in the management of export trade? Should committees have purely advi- sory or mandatory power? 4. Cooperative export organization. (a) Types of cooperative export organization. (b) Legal status. What are the advantages derived by a concern through memhership in an organization of manufacturers of allied or non-competing products to carry on export trade? A cooperative organization of manufacturers of competing products? What organization measures may be taken to safeguard the interests of each member of the cooperative export sales company ? What forms may cooperative export organizations as- sume ? What are the principal provisions in the articles of organization ? 30 PROBLEMS IN EXPORT SALES MANAGEMENT 5. Departmentalization of export organization. How can the separation of planning and performance be applied in building export organizations? To what extent does this require the utilization of offi- cials whose duties are devoted solely to planning and research ? Should the export department subdivide its work on the basis of functions such as advertising management, ship- ping, etc. ; according to product, so that minor officials, salesmen, and advertising are grouped according to the product to be sold ; according to the types of purchasers of the product, so that separate salesmen and managers are to be used for large-contract customers ; or on other bases ? 6. Building the export organization. Given a product and method of distribution, how can an export department be shaped to fit the financial resources of the company ? Given the character and volume of the products to be sold and limited financial resources, how are methods of distribution to be chosen which will permit of an efficient export organization? What organization is required for selling direct to the foreign retailer ? Through the export commission house ? The export merchant? Through the manufacturer's agent? Through a cooperative selling agency? What organizations are required for the following types of export business : (a) Mail order exclusively. (b) Sale of product through manufacturer's export agent. (c) Through export commission house only. (d) To both foreign jobbers and retailers or only through jobbers. (e) Direct to retailers in foreign countries generally, but to jobbers in some districts. (f ) To retailers exclusively. EXPORT SALES ORGANIZATION 81 (g) Through branch houses or branch stores to job- bers, retailers or consumers. (h) To wholesale consumers; contract selling. (i) Direct to consunu>i"s at retail. C. Export Department Personnel. 1. The export manager. What should the qualifications of the chief export execu- tive be? Are the requirements for successful executives in other lines applicable to the export manager without modification f Is knowledge of the particular line of business more important than knowledge of export technique ? To what extent does the separation of planning and performance affect the qualifications required of a successful export executive? To whom should the export manager report? What should be his place in the business organization? Should he be developed from within the organization or chosen from outside on the basis of export ability and experience ? i 2. The export correspondent; duties and qualifications. What is the relationship of the correspondent to the credit, production, and other departments? Should the correspondent be responsible directly to the export manager? 3. The export credit man. Should the export manager or the domestic credit man- ager pass upon foreign credits? If the concern has a separate foreign credit manager, what should be his relations with the export manager and export department ? 4. The invoice clerk; duties and qualifications. How should the invoice clerk be chosen and to whom responsible ? 32 PROBLEMS IX EXPORT SALES MANAGEMENT ."). The shippinji' clerk ; thities and qualifications. Should the shipping clerk be a part of the export organi- zation ? 6. Other members of the export department. To what extent should the principle of foremanship be applied in the management of export salesmen? Should sales supervisors or field men be employed in export or- ganizations ? If so. what should bo tlioir duties? To what extent should natives of foreign countries be chosen as salesmen, branch nuuiagers, and exclusive rep- resentatives of American coucim'us ? Should branch managers, export salesmen, and otliei" members of the export department be regarded as can- didates for promotion through minor executive positions to major positions in an organization? J). Relations of the Export Department to Other Depart- ments. 1. Domestic sales deparliueiit. What should be the relation of The export depai'tnunit to the domestic sales department —supcfioi-. coordinate, or suboi'dinatc .' Should the exi)ort department be combined with the domestic sales department under the headship of a gen- eral sales manager? What organization is required to make the relatioiishi]) between these two departments as smooth as possible .' 2. Advertising department. Should the foreign advertising (h'])artment lie subordi- nate to the export department? Should the domestic advertising department handh^ for- eign advertising? If so, should it be done under the supervision of the ex]ioi'1 manager? Who should pass upon foi'cign advertising appropria- tiojis ? EXPORT SALES ORGANIZATION 33 Should, an export advertising agency perform the work of publicity in foreign fields? If it is decided to engage the services of an agency, is it necessary also to maintain an advertising department? 3. Credit department. Should the export credits be handled by the domestic credit department or by the export department? What organization measures assist in coordinating credit management and export sales ' Should the export credit department be centralized or decentralized in large organizations selling through branches ? 4. Production department. To what extent can organization provide for coordination of export sales and production ? What are the advan- tages and disadvantages of committees created for the purpose ? What is to be said for specialized coordinating officers? 5. Packing and traffic department. What should be the position of the traffic department with reference to the export department? Should the export department have control or super- vision over packing and shipping? What means should be adopted to secure proper co- ordination of activities if packing and shipping are not controlled by the export department? G. Finaiicial department. What relationship should exist between the export de- partment and the accounting and financial departments? To what extent should the financial department hold a check over the export department? 34 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 1 Reddington Company — Location of Export Department The Reddington Company, which manufactures colored paper and cardboard novelties for decorative purposes at fetes and hoHday celebrations, is concerned with the ne- cessity of choosing between New York and its plant in western Pennsylvania as a location for its export depart- ment. Its export business has up to this time been car- ried on under the direction of the sales manager. It has recently been decided that the volume of exports war- ranted the establishment of a separate export depart- ment. Since the company sells its merchandise f.o.b. mill through its own sales force, it is not tied up with big ex- port houses. The actual making out of its insurance pa- pers, bills of lading, and documents is left to forwarding houses in the various ports. Drafts and collection mat- ters are handled by New York banks. Since the organiza- tion has been kept close together and little time has been lost in communication between the sales and production departments, the company has found it convenient to carry on its export business from the factory. The Rohrman Gompan}^, which is a competitor of the Reddington Compan}^ has recently established its export office in New York City. It sells its products through wholesalers in the United States and its foreign business is handled entirely by export houses. The company's prices are quoted f.o.b. New York. The firm located its export offices in New York because that city is the largest export center of the United States and the majority of export companies and commission houses have their main offices at that port. The company is thus able to keep in closer touch with its agencies and secure a more rapid filling of orders. Warehousing facilities are available to take care of varying requirements, and the Rohrman Company has been well satisfied with its present ar- rangement. EXPORT SALES ORGANIZATION 36 Should the Eeddingtoii Company locate the offices of its export department in New York City?* Problem 2 Nash Company — Splitting the Export Department Twenty-two years ago when the Nash Textile Company first entered the export field, Mr. McVey, w^ho is now president of the organization, developed the trade with England, India, South Africa, Australia, New Zealand, and the other British Possessions. The company now has a large export business, particularly in China and the Philippines and in practically all the countries of Latin America. Its total sales of cotton textiles in the foreign field exceed $1,300,000 a year. The export depart- ment handles all foreign orders except those from the British Possessions, which are passed upon by the presi- dent because of his personal acquaintance with the buyers *The location of the export department is discussed by Walter F. Wy- man, in Export Merchandising, McGra-w-Hill, N. Y., 1922, Chapter VI; by B. Olney Hough in Practical Exporting, Johnston Publishing Co., N. Y., 1919, pages 103-105; by Messrs. 'Delgado and Kockwell in Proceedings of National Foreign Trade Convention, 1921, pages 127-156. The following are among the articles in export journals dealing with this subject: The World's Marlcets. Feb. 1920, p. 19 — "Housing New York's Exporters." June 1920, p. 29— "Practical Exporting." July 1920, p. 29— " Practical Exporting." Aug. 1920, p. 33— "Practical Exporting." June 1921, p. 25 — ' ' Location of the Export Department. ' ' June 1921, p. 26 — "Advantages of the Seaboard Location." Export Trade and Exporters' Review. May 14, 1921, p. 7— "The Export Department at Seaboard." May 14, 1921, p. 11— "The Export Department at the Plant." June 11, 1921, p. 35 — "Export Department Location Depends on Class of Goods Exported." It is evident that the problem of location arises particularly in plants located inland, though instances may be cited in which factories situated in port cities or even in the Metropolitan area of New York have consid- ered it advisable to locate their offices in lower Manhattan. Where export sales functions are performed, by officials having responsibility also for domestic sales, the problem of location of export department is bound up with the problem of location of domestic sales department. 3G PROBLEMS IN EXPORT SALES MANAGEMENT ill those coiiiitrics. ^[aiiy of the letters eoiitaiiiiiii>: or- ders from Britisli houses frequently convey personal messages to him, and he has therefore been unwilling to surrender this part of the work to his export manager. The amount of business done by the Nash Goni]iany in the British Possessions is $410,000 a year. If this busi- ness in the Britisli Possessions were now to be taken over by the export department, the personal contact between buyer and seller would be lost. Although records have been kept, the export department would have difficulty in handling this business efficiently Avithout a thorough study of past transactions and a complete explanation by the president of each customer's needs. At present both the company's main office and the ex- port department are located in Boston, but a number of export orders are handled through commission houses lo- cated in New York. In South America and China the com- pany deals with the retailers through exclusive agents lo- cated in most of the large cities. When these agents or other large customers of the company visit the United States they usually make their headquarters in New York, and it is an advantage to the firm to have a repre- sentative there to greet them. Most of the shipments are also made from that cit}^ because of the better steamship service which can be secured. In arranging for cargo space and in dealing through forwarding agents and com- mission houses, there is a distinct advantage in having the export department located in New York. It has been agreed, therefore, that the export department should be moved to New Y ork ; but it has not been decided whether • the export business ^vith the British Possessions should continue to be carried on from Boston or should be han- dled by the export department from its New York office. With the president located at the company's headquar- ters in Boston still continuing to handle the British busi- ness, a division of the export business and a duplication of elfort in both the New York and Boston offices would result. If a Britisli order were received it would have to be i)asscd upon by the president, the date of ship))ing set, terms and ])ri('es agreed upon, and a letter of acknowl- EXPORT SALES ORGANIZATION 37 edgmeiit sent to the customer. The order would theu be sent to the factory to be filled, but the shipment might be made from either Boston or New York. In this case bills of lading, securing of customs declarations, and similar matters would have to be attended to in both cities, de- pending upon the port from which the goods were shipped. Should the Nash Company continue to handle exports to the British Possessions from Boston, or should this work be concentrated in the hands of the export depart- ment in New York City? Problem 3 The Northern Electric Company — Splitting Export Department Between Plant and New York The Northern Klectric Company has decided to open a New York office for its export department. Although the company has salesmen o])erating in most of the countries of Europe and South America and in China and Japan, it does a substantial business through conmiission houses the headquarters of which are usually in New York City, as are the headquarters of most of the ocean transporta- tion companies. An export office and warehouse located in this city afford quicker service than would otherwise be possible, and being near the docks last-minute changes and corrections can bo made in foreign orders. Export managers' conferences frequently are held in New York. If new foreign salesmen are needed they can be secured more easily than anywhere else, and visiting buyers usually make this city their headquarters. In short, the Northern Electric Company has decided that if it wants to continue the development of its foreign business under the most favorable conditions it should locate its export office in New York, the city where most of the foreign trade in electrical lines is carried on. This firm manufactures small motors and electrical lixtures and appliances of all kinds. Its main factory is located in western Pennsylvania. wb^^v(> v:; t ,-• thi; present 90657 38 PROBLEMS IN EXPORT SALES MANAGEMENT time the export department has had its headquarters. The company is continually carrying on research work for improving its product and has the reputation both in the United States and abroad of manufacturing as good equipment as can be purchased from any of its compet- itors. The amount of export business is so large that the domestic and export sales departments are operated as separate companies, although they are both supplied by the same plant. The export department is made up of nine main divisions which have the following functions : 1. The research division is maintained for developing new products and for experimenting with new methods of manufacturing goods of foreign specifications. 2. The planning division arranges with the production department for the scheduling of all foreign orders, fol- lows their progress through the plant, and maintains proper coordination between the export and production departments. .3. The warehouse division provides storage for goods for foreign shipment until they can be turned over to the carrier. 4. The accounting and statistical division keeps a rec- ord of the sales and ties in the accounts of the export de- partment with those of the cost accounting and auditing departments at the plant. 5. The estimating division quotes prices based on the foreign specifications sent in by salesmen. These quota- tions are based upon the actual cost of producing the product. 6. The bilUng department handles the billing of each customer's order and makes out the necessary papers and documents. 7. The shipping division sees that the goods are packed properly and shipped in time to 'reach the steamer before it sails. EXPORT SALES ORGANIZATION 39 8. The credit division passes on all questions of foreign credit. 9. The sales division has charge of the hiring and con- trolling of all foreign salesmen and is responsible for the securing of all foreign business. The Northern Electric Company is now confronted by the necessity of determining which divisions of the ex- port department should go to New York and which divi- sions should remain at the plant. Problem 4 The MacKusick Paint Company — Organization for Direct Exporting* Like many other American manufacturers the Mac- Kusick Paint Companj^ made its first entrance into for- eign trade through orders received from a commission house. From 1914, when it began exporting ready-mixed paints, until the present time this firm has continued to work entirely through commission houses. Frequently performing the functions of resident representative of a foreign exporting and importing business, the commission house disposes of shipments to the United States and *It is obvious that the size and character of an export organization are materially affected by the general distribution policies of the concern, par- ticularly with regard to direct or indirect export. Cf. pages 15 and 16 above. As a consequence, much published material upon the export department deals also -with the broader phases of distribution policy. There is, however, no detailed study of the organization of the export department available. The best sources of information upon the subject are Hough, Practical Export- ing; Wyman, Export Merchandising and several articles in The World's Markets and Export Trade and Exporters' Review. Among other refer- ences may be cited: Printers' Ink. Feb. 6, 1919, p. 3 — "How to Organize for World-wide Business on Advertised Goods." The World's Markets. Feb. 1921, p. 25— "The Control of Export Sales." Mar. 1921, p. 35— "The Control of Export Sales." Apr. 1921, p. 31— "The Control of Export Sales." 40 PROBLEMS IN EXPORT SALES MANAGEMENT 8cnds back American iJioduets as ordered. As a purchas- ing agent for foreign houses it is the duty of the commis- sion house to trj^ to secure the lowest possible prices for American goods, and the MacKusick Company has some- times been informed that it must reduce its prices if it wants to secure an order. Frequently the same house also acts as the foreign sales representative of the MacKusick Company, and \\dth its foreign branches and connections with foreign firms as purchasing agent it has been abk to secure a number of export orders for ]\IacKusick Export Trade and Exporters' Ilcvicic. Oct. 9, 1920, p. 8— "Ten Years' Experience with tlie 'Built-in' Ex- port Department. ' ' Nov. 20, 1920, p. 9— "Tlie Spread of the 'Built-in' Export Depart- ment Idea. ' ' Nov. G, 1920, p. 8— "The 'Built-in' and the 'Separate' Export De- partments Compared. ' ' Irving National Bank, N. Y., 1917 — Trad in// with Latin America, by E. B. Filsinger, pages 57-59. U. S. Bureau of Foreign and Domestic ('oniuierce, Washington, 1919, Miscellaneous Series No. 81 — Sellinfi lo Foreign Markets, by Guy Edward Snider. Chap. Ill — "Direct Sales Problems — Organization and Methods of the United States Steel Products Co., of the Foreign Sales Department of the International Harvester Co. ' ' De Haas, J. Anton, Ph. D. — Foreign Trade and Shipping, Alexander Hamilton Institute, N. Y., 1919. Chapters VI, VII and IX. Preciado, A. A. — Exporting to the World, McCann, N. Y., 1920. Chap- ters III and IV. Ford, L. C. and Ford, Thomas F. — The Foreign Trade of the United States. Scribner's, N. Y., 1920. Chapter VI. Kidd, Howard C.—Kidd on Foreign Trade, Prentice-Hall, N. Y., 1921. Chapter XX. Calvert, Alfred — Shipping Office Organization. Management and Ac- counts, Pitman, London, 1910. Chapter I. National Foreign Trade Council, Proceedings of Conventions, 1918, p. 191, A. E. Ashburner — Developing a Foreign Department. Savav, Norbert, M. A. LL.B — Principles of Foreign Trade, Ronald Press, N. Y., 1919. Chapters II, XII, XXII and XXVI. Vedder, George C. — American Methods in Foreign Trade, McGraw-Hill, N. Y., 1919. Chapters VII and XII. Wolfe, Archibald J. — Theon/ and Practice of International Commerce, International Book Publishing Co., N. Y., 19] 9. Chapter IV. Wynian, Walter F. — Direct Exporting. BuHiiu\ss Training Corporation, N. Y., 191G. Chapters II and X. Yawman & Erbe, N'. Y. — h'ecord Si/slans and Fiting KiiHipmmt for the Export Department. Cf. note on problems 45 a^'- ^"'. to: rsfeience on commission houses and export merchants. EXPORT SALES ORGANIZATION 41 paints. Foreign customers are gvuerally more conserva- tive than Americans and more inclined to follow the old- established methods. If they have friends in the commis- sion, business or have done business with such a house for a number of years, these merchants are inclined to continue purchasing from them, even though they have an opportunity to buy directly from an American man- ufacturer. These are some of the reasons why commis- sion houses have been able to build up and maintain an annual sales volume for the MacKusick Company of nearly $230,000, even during the depression of 1920 and 1921. Although the compajiy has been gratitied by the amount of business built up by the commission house, permanent customers have not as a rule been developed and the firm has decided that if it is ever going to build up a large sales volume in the foreign field it must undertake direct exporting. This attempt to lessen the gap between the MacKusick Company and its foreign customers is apply- ing to the export field the same policy which the company has always followed in the domestic market. It is not so much a question of saving money as of service ; for the first year or two the company would probably suffer a loss, but by rendering better service and furnishing these customers with the kinds of paints they need, it is hoped to secure their good-will and to develop a larger volume of sales in the future. The officials realize that some changes in organization may be necessary in the shift from indirect to direct ex- porting, because such export orders as have come to them have been handled by the domestic sales department. It is proposed to secure an experienced export manager familiar with selling paint in Latin American markets and to send salesmen to Mexico, Cuba, the principal countries of South America, Australia, and New Zealand, inasmuch as many of the orders for paint have come to the com- mission houses from these fields. It is planned to liave these salesmen call on the most important retail paint dealers in the principal cities of each country. Several months before the salesmen arc sent into llie field, all 42 PROBLEMS IN EXPORT SALES MANAGEMENT paint dealers will be circularized by mail with illustrated pamphlets showing the uses for MacKusick paint in each country. This preliminary campaign will be followed up by personal letters sent to all merchants evincing inter- est. These letters will be mailed at dates preceding the actual visits of the salesmen. Every member of the company is enthusiastic over the new plan for direct distribution in the export field, and the foreign sales manager is confident that although his salesmen may secure but a few orders on their first trip, subsequent trips will bring greater returns and that the present sales volume in the foreign field should be doubled in two years' time. Two questions remain to be decided — first, as to what further changes in organization will be necessary for direct exporting; and secondly, whether the company should deal with foreign customers exclu- sively through its own sales force and direct correspond- ence or whether it should continue to solicit and accept orders from commission houses operating in the same field. Problem 5 Baer Manufacturing Company — Organization of Export Department* For some time the Baer Manufacturing Company has been considering the advisability of organizing a sepa- rate export department instead of continuing to handle its foreign trade business through its domestic sales de- partment. Recently the whole matter was brought to a Walter Wyman lists the forms of organization for export which are to be found in accepted American practice.' (1) Management in immediate control of both export and domestic sales, with no titles indicating departmental leadership. (2) Management in immediate control, with staff containing neither sales nor export manager as such, but where titles are used to describe the activities of individuals. '^World's Markets, February 1921, p. 26. See also subsequent articles in March and April issues. EXPORT SALES ORGANIZATION 43 head when Mr. Baker, the export manager, walked into the president's office and said: ''Last week our credit department lost $31,000 worth of busi- ness by refusing to accept orders from two of our oldest and most reliable customers in Cuba. Today I received cablegrams from both these houses asking us to close their accounts at once. You know as well as I do that this is not the first time this sort of thing has happened. At a time when we need orders the most, other departments are driving business away. Until we organize a separate department it will be impossible for us to build up a permanent foreign business, and I might just as well be out playing golf as wasting my time around the office." The president immediately called the credit manager on the telephone and was told that these two customers had paid only a small part of the amounts due on their last shipments, and to allow any more orders from them to be approved w^ould be ''throwing good money after (3) Management in immediate control of domestic sales, with an officer of the company acting as a sales manager, but with a titled export manager responsible for initiative and foreign sales. (4) Management in control of separate domestic and export sales, respectively, headed by a sales manager and an export manager with no common duties. (5) Management in immediate control of export sales, with domestic sales directed by sales manager with no export duties. (6) Management in control of domestic sales directed by sales man- ager; foreign sales under control of the sales manager. (7) Management in control of domestic sales directed by a sales manager; foreign sales handled by separate sales company. (8) Management in control of domestic sales directed by sales man- ager; export sales handled by branch house manager or managers located at seaboard cities. Branch house manager or managers under control of management on export activities. (9) Management in control of domestic sales directed by sales man- ager, who also directs foreign sales handled by branch houses. (10) Management in control of domestic sales directed by sales man- ager and management in immediate control; export sales handled by com- bination export manager, manufacturers' representative resident in United States, export commission houses, or combination export travelers. (11) Management in control of domestic sales and export sales directed by sales manager, who controls foreign sales handled by com- bination export manager and other agencies outside the enterprise. (12) Management in control of domestic and export sales directed by combination sales and export manager, his associates or assistants or both. (13) Management in control of domestic sales directed by sales manager; management in immediate control of disposal of sales riglits to outside interests. (14) Management in control of domestic sales directed by sales manager; foreign sales rights sold to outside interests. 44 PROBLEMS IN EXPORT SALES MANAGEMENT bad." The export manager said that the customers had given their word that they would i)ay up at a hiter date and that iho orders should have gone through without any difficulty. He asked that the question of establish- ing a separate export department be considered by the executive committee at once. A meeting was conse- quently called by the president for the following day and Mr. Baker was asked to attend. (15) Management in control of domestic sales directed by sales manager; all exporting handled by subsidiary companies in connection Avith their domestic sales and under any one of the preceding systems of management control. ' ' It is extremely difficult to give an ade(iuate picture of the manifold variations in business organization and their effect upon export organiza- tion. The following brief suggestions taken from a large number of organization charts and descriptions are illustrative of only a few: (1) A cash register company. Sales division in charge of general sales manager. Selling division — first section covering United States and Canada in charge of assistant sales manager with field assistants, office assistants, promotion depart- ment, sales school director, and service division; second section foreign sales covering Latin America; tltird section foreign sales covering Australasia, and several other branches are incorporated as subsidiary companies; fourth section Germany, Austria, and Central Europe; fifth section Great Britain and Ireland; sixth section Scandinavia, Holland, Greece, and certain Central European contries; seventh sec- tion Trench, Italian, and Swiss subsidiary companies, Portuguese, Algerian, and Egyptian branches; eijihtli section advertising division; ninth section foreign department in the home office. The sixth and ninth divisions are in direct charge of the general sales manager. All the other divisions, with the exception of the fifth and seventh which are under one man, are headed by separate assistant sales managers. (2) A company manufacturing inks and adhesives. President and general manager in control of sales. Sales and export manager reports to geTieral manager. Associate sales managers with duties as follows: (a) domestic distribution of ink and adhesive products; (b) ribbon and carbon ])roducts, ])rices, and trade custom- ers; (c) exports and assistant ink and adhesive sales manager for domestic territories; (d) ribbons, inks and carbons. Foreign credits controlled by manager of foreign finance, who is also the domestic credit manager. (.S) Manufacturer of men's and \vomeii 's hats. Treasurer and two vice-presidents report to president. One vice- president is works manager in charge of production; the other vice- president is responsible for selling and jnirchasing. Sales manager and export manager rejiort to second vice-jiresident. Most of export business done through exj)ort houses with headcjuarters in New York. Company has salesmen of its own in certain territories. (4) Shoe manufacturer. Vice-president, secretary, nuinufacturing superintendent, sales manager, and treasurer all report to president and managing diroctOT, EXPORT SALES ORGANIZATION 45 At thi.s meeting of the executive committee the sales maiiag-er, general manager, and export manager were present, and as soon as the prehminaries were over the president asked the export manager to state his views as to the advisability of establishing a separate export department. ''Gentlemen/- said Mr. Baker, "our company is one of the best^ known manufacturers of hinges, window catches, door latches window pulleys, and other builders' hardware in this filTpH n 11 'TT'-'- P"^^"«^ly' 0^1- company was small and filled only local demands. Its sales and production departments were organized accordingly. Now we have expanded, established tAvo branch factories, and secured national distribution of our product. In the old days when the home market was glutted and we could not dispose of our stock here in the United States we got in touch with an export commission house in New York ( ity aiKl arranged to sell our surplus in other countries at any Sales (lej.arhncnt divided into sections in charge of Ca) store sales ™l'or: ^.^ ^\-^;^;-^ ^I--fieation nu-nager; (c) sSL 'prno^tn' • n^er' ^cLWl? V f^'"'t '"^"' "manager; (e) advertising mmagei. (,,edit department under control of treasurer Exnort selling agencies and salesman report to agency and export sales manager or to his assistant. ' ^ " ^"'^^ (.'>) A concern manufacturing low-priced watches diS;on"(:^n^5"t^„r"s ""'^ ''^t^"= ^'^ ^«"-«t- -i- ijxnoiuji i^gtneiai niancli otnce mniino-pr^ ■ ^o\ „i„„ • t • . (6) Manufacturer of calculating machines To the vice-nresident i,i „i/ ^reasurei— all report to president. manage.-, the central division „,„„Ser tl!e Nei pSf, i r"'!°" manager, an.l the eastern division InSager ^ "'"" ''"■"""' Cf tcr III also ^liscellaneous Scrip's ATr. ci c„n- ■ -■-, ,-^iiies i\o. 81, belling in Foreian MarTrpfv Ohn-r. is referred t» ; , • .Wil, tion ,. J'? """^T '? 'o'™"' ''" k'wwledege vrhe,, bv E D Jo es F„;^™ n Admntstrntion of IndmIrM Entir- Dieme'r ;-Vr;„S,£':}' SSfX^^^i'S^'t/^rt'Sa''^ «"^° 46 PROBLEMS IN EXPORT SALES MANAGEMENT price it would bring. Then our foreign trade consisted of dump- ing the company's surplus products in foreign markets; our export business was small and quite naturally it was handled through the sales department. Credits, routing, packing, and shipping of foreign orders were handled by the same depart- ments that handled the domestic credits, traffic, shipping, and packing. Now, however, our company has an annual sales vol- ume of over $3,000,000, and our exports constitute one-third of this business. Our sales department still maintains its old atti- tude of regarding the foreign field as a dumping ground. Our company has not established permanent connections with our customers in foreign countries, and it has made but little at- tempt to study and develop that field. ' ' Today we need more business in order to operate our plants efficiently. Our production manager bears me out in this state- ment. The domestic market is becoming more and more nearly saturated, but to develop a foreign business we must use differ- ent methods than those that we use in this country. We are attempting to break away from export commission houses and to establish our own sales force in the field. The men whom we send out are trained and equipped no differently from the men we send out in the United States, although they must face en- tirely different conditions. A number of our customers have been unnecessarily offended by the blunt attitude taken by our credit department, which has treated our foreign customers in exactly the same manner it has treated our American clientele. The president has told you of the orders and customers that we lost last week. Shipments are often packed without sufficient care or careful checking, and we have lost other customers through failing to have our goods arrive on time. The only way that we can build up a fareign business and hold our cus- tomers after we have spent time and money in securing them is to organize a separate export department to specialize in this trade. ' ' After the members of the executive committee had asked a few questions and had satisfied themselves that an export department could bo established without bring- ing in any outside men except those needed to increase the sales force in the foreign field, they asked the sales manager, Mr. Walker, to state his views. Mr. Walker said: ' ' The largest part of our business has always been in America and it is our domestic business that has been most profitable. I don 't need to bring up examples of foreign shipments on which the company has been forced to suffer a loss. We have in the EXPORT SALES ORGANIZATION 47 past shipped p,oods to Brazil and our customers have refused to accept them after they arrived because they could buy at a lower price from German and English competitors. It is true that they said our shipments were short and that some of our goods were defective, but these shipments were exactly the same as those we had sent before on which no objections had been raised. Americans are quicker to take up improved products and better ways of doing things, but in almost every case foreigners must be educated to appreciate improvements. They like the old pat- terns that we put out ten years ago. Furthermore, our foreign customers are fussy. They think they must have something a little different from our standard stock. In order to satisfy them we have had to turn out special orders at such a cost that we have been able to realize only a nominal profit on many of our shipments abroad. "If we are to organize a separate department to handle the granting of credit, routing, packing, and shipping of our ex- port orders, it means duplication of effort and increased cost. For the past three years we have been doing everything possible to cut down our overhead. Certainly we cannot reduce expenses if we are going to organize a department which is to handle identically the same work that is taken care of by our present departments. Our present system has worked very well. We have shown an increase in sales volume for the past eleven years, 'through periods of prosperity and of depression. This company was founded to build up an American business, and only when we have had a surplus have we disposed of it abroad. I believe that we ought to continue our present policy of developing that portion of the business on which there is the greater rate of profit and not waste our time trjang to fool around with a bunch of foreigners who nine times out of ten do not know what they want. ' ' Would it be advisable for the Baer Manufacturing Company to establish a separate export department? Would the decision be altered if export credits were to continue in the control of the domestic credit department? Problem 6 Kimball Company — Organization of Export Department The Kimball Company is i)]aiiiiing- to i^ive more atten- lion to the develo]mieiit of its foreign trade. For a number of years the iii-m lias handled all ex])ort trade 48 PROBLEMS IN EXPORT SALES MANAGEMENT under the direction of its domestic sales manager. Re- cently, like many other manufacturers, it has been expe- riencing serious difficulty in maintaining its foreign sales volume. Business conditions and exchange rates have been unfavorable to export trade, competition from for- eign houses is becoming keener, and customers are de- manding better service. To handle its foreign sales, the company has decided to establish a separate export department. The Kimball Company manufactures several different grades of art shingles and roofing paper. Its products are sold in the United States mainly to large consumers, lumber yards, and wholesalers of builders' supplies. In the foreign field the company is somewhat limited as to markets, since in England and on the European continent building construction is more or less permanent and roof- ing paper is seldom used. Likewise, in China and other sections of the Far East, thatch and similar materials are used for roofing purposes. A considerable demand is developing, however, in. South America, in sections of Mexico and the West Indies, where the sugar companies are building temporary barracks, and in Canada, where construction is frequently of the same type as that in the United States. In the large industrial centers of these territories the companj^ sells direct through its own salesforce, but in the smaller, outlying districts it some- times resorts to exclusive agencies. The company's sales offices are located at its plant in New Jersey. It is planned to continue to handle all for- eign sales from this location, and the export department will therefore be located at the plant. The assistant sales manager, who has specialized on distribution in the foreign field, is to be the head of the new export depart- ment, but it has not been decided just how this depart- ment will be organized or how it will fit in with the rest of the organization. At present the company is consid- ering two different plans. The first plan is to have the export manager respon- sible for the establishment of foreign branches and exclu- EXPORT SALES ORGANIZATION 49 sive agencies and for the proper handling of the sales- men. The export department is to be concerned mainly with the securing of orders. The handling of all credit, the hilling, packing, and shipping of the goods, advertis- ing, and similar f mictions are to be carried on by the departments handling these functions for the domestic business. On questions of advertising the export man- ager is to be on the same footing as the domestic sales manager. All advertising campaigns will be planned by the export manager and advertising manager together, the appropriations for which must be approved by the executive committee, made up of the president, general manager, and the other division managers of the com- pany. This organization is illustrated by Form 1, below. 1 PRESIDENT Vice-President General Manager 1 1 1 1 1 1 1 Domestic Sales Manager Export Sales Manager Advertising Manager Office Manager Production Manager 1 1 1 1 Domestic Branches Foreign Branches 1 1 Production Departments Billing Accounting 1 1 1 1 1 Salesmen Foreign Salesmen Correspondence Credit Traffic 1 1 1 Shipping Orders Orders FORM 1. The Kimball Company— First Proposal for Organ- ization of Export Department This plan of organization avoids duplication. It is frequently possible for the credit manager to delegate some of his routine work to others in his department, thus giving him ample time to devote to the problem of foreign credits. The heads of the billing, packing, ship- ping, and traffic departments are also able to handle this business as they have done in the past. By concentra- 50 PROBLEMS IN EXPORT SALES MANAGEMENT ting all credit work under one head it is possible to secure a better man for the job, since the position is more im- portant and the company frcquentl}^ is able to pay a higher salary. The same applies to a less extent to the other departments. To have a large number of peo- ple in the organization come in contact with foreign trade work has a broadening effect throughout the organiza- tion and tends to bring the export policies into harmony with the other policies of the company. The second plan under consideration is to make the export manager completely responsible for everything in connection with the export business. Not only will he have charge of the foreign branches and foreign sales- men and the securing of orders, but he mil also be responsible for the foreign credit and advertising poli- cies of the company and for the proper billing, packing, shipping, and routing of merchandise. This type of organization is explained by Form 2, below. Domestic Sales Manager Domestic Branche! I Domestic Orders PRESIDENT Vice-President General Manager I Export Sales Manager Foreign Salesmen Advertising Manager Office Manager Correspondence Production Manager FORM 2. The Kimball Company — Second Proposal for Organ ization of Export Department This method of oi'ganization gives the export man- ager a freer hand. Not only is he able to secure orders through the proper handling of the salesmen, but he can also assist his foreign representatives in securing busi- ness by making special credit terms in the countries in EXPORT SALES ORGANIZATION 51 which competition is particularly keen. Through his study of the foreign field and from his contact with the company's special agents, through actual visits and by correspondence, the export manager is in a better posi- tion to judge the most effective advertising methods than is the domestic advertising manager. By follow- ing up billing, packing, shipping, and routing of foreign orders, responsibihtj^ for satisfactory service is cen- tered in the export manager. Under these conditions an export manager has no one to blame but himself if prompt and efficient service is not rendered a foreign customer. Which form of organization should be adopted by the Kimball Company? Would it be possible to reorganize the sales depart- ment in such a way as to avoid the necessity of a sepa- rate export department ; for instance, by having the domestic sales manager and vice-president in charge of sales so select and educate the various members of the domestic staff as to efficiently handle both domestic and foreign business? In the resulting organization the advertising manager would be responsible for both for- eign and domestic advertising, the office manager for foreign and domestic billing and correspondence, the traffic and shipping departments for proper packing, shipment, and routing of foreign as well as domestic orders. Problem 7 The Hammett Company — Committee Organization as Applied TO Export Department The Hammett Company manufactures an extensive line of paper products, including labels, tags, tissue papers, jewelry boxes, paper articles for holiday trade, etc. The board of directors consists of six men, one of whom is in charge of purchasing; the second in charge of manufacturing, warehousing, shipping, finance, ac- 62 PROBLEMS IN EXPORT SALES MANAGEMENT counting, and office ; the third in charge of the retail stores maintained by the company in five of the larger cities ; the fourth in charge of merchandising ; the fifth in charge of selling personnel; and the sixth in charge of foreign sales. Extensive use is made of a system of advisory com- mittees which are not themselves executive bodies, but are in all cases advisory to some executive. The work that the committees undertake is of various types, but in general, wherever the development of plans and poli- cies calls for full presentation and understanding of the interests of two or more separate administrative units of the business — for instance, production and sales, pro- duction and foreign sales, domestic sales and foreign sales, or the like — wherever coordination is the principal problem, committees are used and the management claims that they fill a place that cannot be filled by any other device of management. Relating to domestic sales work there are several types of committees : 1. The subordinate merchandise committees. 2. The chief merchandise committee. 3. The advertising committee. 4. The sales committee. The subordinate merchandise committees are five in number, divided and named according to the sales depart- mentalization of the product of the company; e. g., the holiday trade committee, the jewelry trade committee, and others. The chairman of a committee is the mer- chandise manager for that department; the man whose duty in the sales work is to stimulate the sale of prod- ucts placed in his department. Other members of these committees are taken from the sales force and from the production departments. Each committee acts in an advisory capacity to the chief merchandise committee on such matters as regards means of improving the prod- uct, packaging, and stimulation of sales. The chief merchandise committee consists of the five merchandise managers, those who act as chairmen of the EXPORT SALES ORGANIZATION 53 subordinate committees. This committee passes on all recommendations of the subordinate merchandise com- mittees. Briefly, the functions of the merchandise man- agers and of this committee are as follows: direction of sales by lines; instruction of salesmen in selling; devel- opment of merchandise ; control of schedules for making and introducing new merchandise ; passing on all ques- tions relating to change of labels, goods, or put-up; dropping of old merchandise, or disposing of dropped goods ; recommendation of selling prices to the estimat- ing department, whose schedules, in turn, must be approved by three directors. The advertising committee, which consists of the ad- vertising manager, one territorial sales manager, the chief sales correspondent, and the assistant manager in charge of dealers' and consumers' service work, origi- nates advertising plans and passes on the recommenda- tions of merchandise managers as to advertising. The sales committee is an unofficial body consisting of the territorial sales managers, the advertising man- ager, the president, and the director of finances and manufacturing,, which outlines the major policies of selling to be passed upon by the board of directors. Supervision of the sales force and the total domestic sales, as contrasted Avith sales by departments, rests with the director of selling personnel, who has two assist- ants or territorial sales managers aiding him. The director also acts as a territorial sales manager. A list of the functions of the territorial sales managers includes: Management of district managers and salesmen. Jurisdiction of total sales (sales by departmental lines to be accounted for by merchandise managers). Passing upon questions of policy affecting relations with customers. (New policies or interpretation of difficult cases rest vdth a committee of directors.) Direction of sales correspondence as recommended by subcommittees on sales correspondence. Promotion of new methods of selling. 54 PROBLEMS IN EXPORT SALES MANAGEMENT The director in eliarg-e of t'oreii>ii sales lias final authority over the ex])ort sales organization and its operation. The foreign organization is world-wide, con- sisting of a bi-aneh factory with a sales organization located at London, offices and warehouses at Rio de Janeiro, Buenos Aires, Mexico City, and Copenhagen, and representatives in other important centers. Contact between the export and other departments is maintained chiefly through informal conferences between the direc- tor ill charge of foreign sales and the appropriate depart- ment heads. Since the director of foreign sales considers it necessary to travel a good deal during the next few years in order to re-establish foreign agencies affected by the unsettled conditions of the past five years, the question has come up in acute form as to whether the various merchandise managers and merchandise com- mittees should be given the same power with respect to export sales that they now occupy with respect to domes- tic sales. In effect this would amount to placing the director of foreign sales on a level, as far as authority and duties were concerned, with the director of selling personnel, who under the present organization operates solely in the domestic field. Should the proposal be adopted!* Should the merchandise committees have mandatory power? *Modern Sales Organization, issued by the Dartnell Corporation of Chicago, contains several examples of other types of committee organi- zation in domestic trade. An interesting example is an earlier organiza- tion of the Greenfield Tap & Die Company, manufacturers of a large line of machine tools, pipe tools, and small tools used in Avood and metal working trades. Their sales organization is of the committee type, the direction of sales being divided between throe sales managers, each one in charge of a particular line of products — namely, nuxchine tool sales manager, pipe tool sales manager, small tool sales manager — and the sales promotion manager. These four managers act as a committee in the mniiagcment of district s;iles managers in the domestic nuirket, and through thoni the salesmen, while the general superintendent of production, the merchandise manager, the export sales manager and tlie sales promo- tion manager make up what is called the "])lanning board," the members of which are under the control of the vice-president and general manager, who is chairman of the planning board. The duty of this planning board is to bring about cooperation and coordination in the activities of the various members; of the organization. The sales promotion manager has cliarge of the printing, advertising, dealers' service, and research. The merchandise manager has charge of orders, claims, service, stocks, bills and stenographers. The duties of the other managers are indicated by their titles. EXPORT SALES ORGANIZATION 55 The president of the concern is a strong believer in the Taylor principles of scientific management, particularly in the separation of planning and performance.* This^ has been carried out to a very great extent in the pro- *Iii the development of scientific management as applied to production, a cardinal jjrineiple lias been the separation of the function of planning from that of performance. While the various advocates of so-called "scientific management" have modified more or less the principles as enunciated by Frederick W. Taylor, this general division and the emphasis upon functional organization have been retained. The Taylor Society, an organization devoted to the furtherance of scientific study of manage- ment, has undertaken to promote the movement for the application of principles which have been successful in production management to the management of sales. As a first step, committees were appointed and an investigation made of representative sales departments. At a meeting of the Taylor Society, preliminary reports were presented by a committee on the organization and functions of the sales engineering department and a committee on the organization and functions of the sales operating department. These conclusions were briefly as follows:^ "(1) The conditions or causes which have led to the establishment of engineering and operating as separate major functions in the pro- duction of products exist also with respect to distribution and indicate the necessity for the recognition of engineering and operation as major functions in the production of sales. (2) Master planning and scheduling can properly be considered sales engineering, delegating detailed planning and scheduling as secondary functions of operation. If one concedes that the distributing organi- zation is the one that usually and naturally originates projects involving the whole jjlant organization, then it becomes obvious that a research and master planning and scheduling function must have a close and sympathetic relation with the distribution organization; hence the choice of the name "Sales Engineering" for this major function. (3) The sales-engineering function presents at least three distinct phases : (a) Field research. (b) Technical assistance. (c) Master planning and scheduling. (4) It should be recognized that the major functions of sales engi- neering is to analyze, plan and schedule future projects and that the planning and scheduling of current projects is a function of the operating divisions. (5) Selling seems to break down into tAvo major functions, distinct in their nature and in the types of personnel required for their per- formance : (a) The making of larger plans for the marketing of a product, involving analysis of the market and the product, the preparation of master schedules, and the coordination of production, financial and selling resources; called Sales Engineering, Sales Planning, Merchan- dising, Merchandise Control, etc., and in many instances cared for by advertising or selling agencies. (b) The actual conduct of the selling operations, involving the detailed planning of selling operations, the selection, training and direction of the sales force, the detailed planning and conduct of ^Bulletin of the -Taylor Society, Vol. V, No. 6, December, 1920. 56 PROBLEMS IN EXPORT SALES MANAGEMENT duction department and to some extent in the domestic sales. Would the proposed change be in line with this general development ? Problem 8 The Townsend Rubber Company — Functional Organization OF the Export Department The Townsend Rubber Company manufactures an extensive line of rubber footAvear and automobile tires, which is sold exclusively through its allied company, the Townsend Rubber Sales Company, the directors, corpo- rate officers and stockholders of which are identical mth those of the manufacturing concern. The rubber sales company is headed by the manager of distribution, to whom report the manager of tire sales, the manager of merchandise, the manager of advertising, the manager of footwear business, the manager of footwear jobbers, the manager of export sales, and the manager of sales information. To the manager of export sales report the deputy manager of export sales, the export correspon- selling operations -when salesmen are not used, and all contacts Avith the customer ; called in this report ' ' Sales Operating. ' ' (6) Sales Operating seems to break down into two principal functions: (a) The detail planning for the preparation of materials and for the supervision and control of all elementary selling processes. (This function breaks down into elementary functions or processes.) (Z;) The actual conduct of sales operations in accordance with the planning and control established in 6(a). (This function also breaks down into elementary functions and processes.) This report is concerned with 6 (a) only; investigation of G (h) is to come later. (7) Conclusions (5) and (6) are the result of a study of a variety of selling departments and present functions which seem to be inherent in selling ; they are not, however, recognized by every selling organi- zation and their execution provided for by functionalized parts of the organization. In one organization one or more functions, in another organization other functions, are recognized and defined. (8) Taylor has shown by his Avork in production that proper results can be brought about only by systematized — not systemized — work, in Avliieh plans, functions, duties and execution are all clearly defined. This is what your committee desires to sec done for selling. While as yet no one has attempted to apply this in detail to export selling, there is no good reason why the general idea of separating plan- ning and performance cannot be so applied. EXPORT SALES ORGANIZATION 57 dent, and the New York export sales representative. The duties and relationships of these officials are best shown from the following extracts from the organization manual : Duties of Sales Manager of Exports 1. He is to have general supervision of exports. 2. Specifically, he is to take charge and control of (a) All salesmen in this division of the work. (b) Use of contracts by salesmen. (c) Discounts within budget allowance. 3. He is to carry out sales campaigns prepared by confer- ence with the Manager of Distribution and the statistics department. 4. He is to cooperate with the credit department in its work. Duties of Deputy Export Sales Manager 1. He is to act in absence of the sales manager of exports ; he is to read over incoming mail pertaining to footwear export sales, passing along to the export correspondence clerk all inquiries for him to handle, and to the manager of footwear merchandise all orders or letters relating to orders already placed. Duties of Export Correspondence Clerk 1. He is to handle correspondence relating to foreign sales. 2. He is to attend to the details of sending sample orders. 3. He is to tabulate inquiries from foreign customers and exporters. 4. Maintain statistics of export trade. Duties of ^^eW York Export Sales Representative 1. He is to develop the export tire business with head- quarters in New York City. 2. On footwear he is to solicit export business in the vicinity of New York or from buyers of the foreign countries from time to time. 68 PROBLEMS IN EXPORT SALES MANAGEMENT Foreign branches must report to the manager of accounts upon all matters pertaining to accounts, to the manager of credits upon all matters pertaining to cred- its, while expenditures outside budget allowances must be referred to the manager of finances. Lastly, office systems are subject to the office manager. While nom- inally all orders go through the export sales manager and managers of particular branches, practically orders are not changed and the manager of distribution must transmit the orders of the other coordinate managers. The manage]" of export sales claims that, instead of hav- ing a section of the credit office under the manager of credits devoted to export credits, it would be better organization to have that section transferred to the export department, for the reason that the conditions of export trade are so different that the export credits could be better handled as a part of the export depart- ment. He makes the same claim mth respect to office management, to the effect that office management, han- dling of orders, billing, and other duties should be left to the control of the export department and should not be under the control of the office manager. While he admits that there has been no harmful conflict of author- ity under present conditions, it is claimed that the sud- den change of personnel through death or resignation of any of the officials might bring about a change of policy or a lack of harmony which would be disastrous and that even at present having the final decision upon export credits rest with the manager of credits and not with the export executive prevents the development of the most desirable relations with many foreign customers. Would the best interests of the Townsend Company be served by the proposed changes'? EXPORT SALES ORGANIZATION 59 Problem 9 The Crowell Company — Organization of a Separate Export Company The export department of the Crowell Company is having considerable difficulty in meeting* cut-price com- petition and in satisf>dng the- manufacturers of allied products carried by its salesmen that their lines are receiving proper distribution. This company, which is a large manufacturer of valves and steam fittings, has been identified for over fifty years with export business throughout the w^orld; its organization is given roughly in Form 3, below. At first this firm dealt through PRESIDENT Executive Committee Vice-President Staff Assistant Vice-Presidpnl products) Staff Assistant Comptroller Vice-President Engineer Purchasing Agent Vice-President sales) Employment Manager Traffic Manager Manager anch Ho FORM 3. The Crowell Company — Organization Chart conmiission houses, bat about twelve years ago it began placing its own salesmen in foreign fields. In order to lower the selling cost of its export business, the Crowell Company's salesmen sell kindred lines of merchandise on a commission basis. The allied products thus handled are crucible iron, rubber hose, rubber packing, rubber belting, steam specialties, and steel cutting and thread- ing tools. AVhen its foreign business was small, the 60 PROBLEMS IN EXPORT SALES MANAGEMENT export department functioned satisfactorily, but now that its foreign business amounts to $1,200,000 worth of valves and steam tittings and almost .$3,000,000 worth of allied i:>roducts annually, complications have resulted and the export dei)artment does not seem to have the degree of specialization required although it was reor- ganized about a year ago. The firm is therefore consid- ering the advisability of organizing a separate corpora- tion to handle this export business. The new corporation w^ould continue to handle the allied lines until the volume of its own business rendered it advisable to discontinue them. This new corporation, which would be lvno^^^l as the Crowell Export Company, would have its headquarters in New York City and would confine its activities to export business. The vice-president in charge of sales would become also president of the new corporation, while the export manager would be in active charge of the New" York office. Ordinarily the export corporation would not sell merchandise through commission houses, but would have its own corps of salesmen in the field. A uniform connnission rate would be charged the Crowell Company and all allied firms making use of the com- pany's services. This corporation would take the re- sponsibility for all credit risks and making out of the proper documents. It would not maintain a warehouse, the merchandise being shipped from the factories accord- ing to the orders of the salesmen. All the stock of this corporation would be held by the Crowell Company. A separate corporation of this type might become a member of an association of competing exporters, exchange information, and even enter into a legal com- bination on prices for the export field in accordance with the provisions of the Webb-Pomerene Law. This w^ould eliminate to a considerable extent price competition among American houses and would be a decided advan- tage in meeting the competition of foreign firms. The allied companies now selling their products abroad through the services of the Crowell Company's salesmen would undoubtedly prefer to deal with a separate cor- EXPORT SALES ORGANIZATION 61 poration. They believe that a separate organization whose business it is to handle nothing but foreign trade would be better fitted to look after their interests than a company whose main business is manufacturing. These manufacturers are convinced that in such an organiza- tion there would be less likelihood of their particular problems being overlooked. They would also feel more nearly on an equal footing with the Crowell Company and less friction should result from such an arrangement than has been the case where their products have been handled by the present export department. There would also be a gain because of specialization, in so far as the conduct of foreign business differs from that in domestic markets. Foreign credit, correspon- dence, selling, and advertising would be directed by men experienced in dealing with foreign customers. Increased good-will would result. Many customers w^ould rather deal with an organization of this type, since they believe that they will receive better service than w^ould be ren- dered by the exjoort department of a company whose main business is to meet the demands of the domestic market. Although it is difficult to estimate the exact amount of additional expense, the handling of foreign business through a separate corporation would be much more expensive than if the present export department were continued. There would also be some duplication of effort, since this new company would require separate accounting, correspondence, and credit departments to handle work that had previously been taken care of at the factory. A separate company would probably incur heavier losses in a time of business depression, since a more elaborate organization Avould be needed than is required by the export department of the Crowell Com- pany. In case of dull- business it would be difficult if not impossible for such a corporation to reduce its expenses substantially, since, having been foi'med solely for the purpose of exporting, the allied manufacturers would expect it to redouble its efforts at such a time. A fac- 62 PROBLEMS IN EXPORT SALES MANAGEMENT tory may shut do^^^l occasionally clnring hard times, but a sales organization of this type must keep going or it will lose its hold on the market. Since the stock of the export corporation would be owned by the Crowell Com- pany, the latter must be prepared to stand this loss. Would it be advisable for the Crowell Company to organize a separate export corporation? Problem 10 Lybrand Manufacturing Company — Export Commission Houses versus Export Association The directors of the Lybrand Manufacturing Company, producing hoes, rakes, and light garden tools, have recently been invited to join the Mutual Exporting Asso- ciation. At present this association is made up of firms manufacturing the following lines : Hammers, hatchets, and axes Saws Chisels, planes, draw shaves, and cutlery Locks Bolts and screws Hinges, window catches, and door latches The agent stated that his association would be able to handle another allied line of hardware, and the members believed that with the expansion in the farming and agri- cultural sections of both South America and Europe, a line of light garden implements would be acceptable as a complement to the merchandise now sold by the associa- tion's salesmen. The association operates on a commission basis of five per cent upon the total sales that it handles. It assumes all credit risk and pays all expenses. Each manufac- turer agrees to furnish such advertising, dealer heli)s, and price lists as may be needed from time to time. On the first of each month each manufactui-er receives a EXPORT SALES ORGANIZATION 63 check in payment for his goods shipped during the past month, less the five per cent commission due the associa- tion. In case a deficit occurs at the end of the year it is mot by assessment on tlie members of the association according to the sales volume of their exported merchan- dise. Although the Lybrand Manufacturing Company for several years has exported $700,000 worth of its product annually, it has failed to establish any permanent cus- tomers in foreign markets. Its shipments have been handled through export houses which maintain their o\vii salesmen in these fields. These houses usually charge from three per cent to seven per cent commission and the prices realized on the company's sales have not been large enough to yield more than a nominal profit. After discussing the plan iiiformally at a directors' meeting, Mr. Russell, one of the directors of the Lybrand Manufacturing Company, said, "My chief objection to joining an exporting association is that I am not at all sure our goods would receive the proper consideration. When several lines are handled by one salesman, he may be tempted to neglect one line in order to push other lines in which he is more directly interested." In reply the association's representative said, "I have never heard of such a complaint from the present mem- l)ers of the organization, although I admit that such a thing might be possible. This disadvantage of the coop- erative selling, however, is offset by the fact that by uniting each manufacturer reduces his distributing costs, since a salesman will carry six allied lines of goods instead of one, and by bunching shipments it is hoped to secure better freight rates and quicker service." The president of the Lybrand Company said frankly: "I have been opposed to joining an export association because if goods are shipped and a shortage occurs due to loss or break- age, a foreign merchant is likely to refuse to aecei)t the ship- ment. The association tlien would make an fidjustmeut and because it is not so close to the cost of production as is the 64 PROBLEMS IN EXPORT SALES MANAGEMENT manufacturer, it might not look after the business interests of the company with the same care. The loss from such an adjust- ment would, of course, fall on the manufacturer. "For example, some friends of mine who are members of a similar association sent a shipment to South America. When it arrived the market had dropped and the customer demanded an adjustment of $200. Because the freight had been paid and the association did not believe it could sell the goods at a more favorable price, the adjustment was allowed and the company- lost all its profit on the sale." The agent of the association argued that a company would suti'er no greater risk as a member of the associa- tion than selling through commission agents, since in either case it must stand the loss due to breakage or loss in transit. "The more I see of committees, conferences, and associations," said one of the directors, ' ' the more I think we are better off if we have nothing- to do with them. In this particular case since any deficit of the association is to be assessed on the members accord- ing to their export sales volume, it seems quite possible that some of the members might be called upon to pay for the loss due to the association's carrying a line of merchandise which required too great a selling expense to introduce. I am in favor of continuing our present policy of letting a commission house handle our foreign business." Would it be advisable for the Lybrand Manufacturing Company to join the Mutual Exporting Association?* *A considerable body of literature upon cooperation in export trade has grown up, particularly since the publication of the findings of the Federal Trade Commission in the two-volume report. Cooperation in Export Trade, and the resulting recommendation on the part of the Commission for the enactment of a law legalizing export combinations. The introduction and passage of the Webb-Pomerene Law gave an impetus to further writing. The most comprehensive study of American export combination is Notz and Harvey, American Foreign Trade, Parts III and IV. Other informaiton is to be found in Hough, Practical Exporting, pages 53-60; Savay, Principles of Foreign Trade, Chapters XVI-XIX; Bonn, The Trade of To-morrow, Chapter XII; Ilauser, Germany's Commercial Grip on the World, Part II, Chapter II; Kidd, Kidd on Foreign Trade, Chapter XXIII; Prcciado, Ex- porting to the World, Chapter X; De Haas, Foreign Trade and Shipping, Chapter X; Veddcr, American Methods in Foreign Trade, Chapter III; and in the proceedings of the annual conventions of the National Foreign Trade Council from 191 5-1918. Upon foreign combinations and their relation to export trade, cf. Cooperation in Export Trade, Federal Trade Commission; EXPORT SALES ORGANIZATION 65 Problem 11 The Reardon Saw Company — ^Withdrawing from Export Association Under Webb Law The Reardon Saw Company has not been entirely sat- isfied "\vith the results obtained from belonging to an export association formed under the Webb Law and is contemplating giving up its membership,** This organization was formed as a cooperative export association for the purpose of building up the foreigii trade of a group of carpenter and woodworking tool manufacturers. The Reardon Saw Company, the Starr Saw Company, and eight other manufacturers of wood- working tools, are members of this association. All have had minor disagreements from time to time, but the principal dissension exists between the two saw compa- nies, neither of which is satisfied with the present arrangement. Both the Reardon Saw Company and the Starr Saw Company manufacture trade-marked articles, which have been extensively advertised and are well Inio^^^i by car- penters and woodworkers throughout the United States. When the association was formed in the summer of 1918, it was suggested that a possible method of handling this situation was to divide the foreign territories be- tween the two saw companies and have each firm ''stick to its o^\ni field." In attempting to divide South Amer- ica in this fashion, it was found that both companies had already advertised in each of the Latin- American coun- tries and had secured a hmitcd distribution of their prod- ucts. Since they had expended both effort and money in the following articles by the writer in the Quarterly Journal of Economics — Nov. 1913, The Kartell Movement in the German Potash Industry and Feb. 1917, The German Steel Syndicate, and in The Annals of the American Academy of Political and Social Science, Mar. 1921, Foreign Trade Organ- ization in Europe since the War. Cf. also Eobert Liefmann, Bie Kartelle ; and the official English report of the Sub-committee on Trusts. More detailed information upon recent developments is to be found in the Board of Trade Journal for England and Kartellrundscliau for Germany. **The Webb Law is carefully analyzed in Notz and Harvey, American Foreign Trade, Part IV. Lists of Webb Law combinations are'to be found 66 PROBLEMS IN EXPORT SALES MANAGEMENT establishing their trade-marks in this field, both firms refused to give up any territory. Both saw companies finally agreed to adopt a miiform price policy and not to midersell each other in any for- eign market. In this way price competition with each other was avoided and these two firms were enabled to put up a united front in meeting foreign competitors. Each company had equal rights in all foreign markets and furnished the export association with circulars and other advertising matter for distribution by the organi- in reports of tlie Federal Trade Commission. The Webb Law and its opera- tion are treated in nnmeroiis articles, among whieli may be mentioned the following: Tlic Jnnals. March 1921, p. 130 — "Organization nnder the Webb-Pomerene Law." 'Export Trade 4' Exporters' Bcview. Apr. 30, 1921, p. 94— " Testing the Value of the Webb-Pomerene Law. ' ' June 18, 1921, p. 9 — "Trade-marks for Associations under the Webb- Pomeiene Law. ' ' Oct. 1, 1921, p. 29 — "A Federal Trade Commission Appraisal of the Webb-Pomerene Law. ' ' Dartnell Corporation, Chicago — "The New Plan of Cooperation in Export Selling with List of Joint Agencies already Organized and Operating. ' ' Huston Thompson, Cliairman Federal Trade Commission, 1921 — "How the Export Trade Act (Webb-Pomerene Law) Is Operating." Bureau of Foreign & Domestic Commerce, Miscellaneous Series No. 81, Selling in Foreign Marliets, by Guy Edward Snider, Chapter VIII. Proceedings of annual conventions of National Foreign Trade Council. 1918, G. H. Montague, p. 302— "Cooperation under the Webb-Pomerene Law for the Eehabilitation of Europe after the War. ' ' George H. Charts, p. 318 — "Organization of a District Export Selling Company under the Webb Law. ' ' 1919, John Walsh, p. 449— "The Webb Law in Operation." L. H. Bissell, p. 461— "The Webb Act; Its Legal Aspects." 1920, Houston Thompson, p. 64G — "Webb Law Developments." E. J. Bartells, p. 658— " The Webb Law in Operation." Edwin E. Judd, p. 664 — "Export Management under the Webb-Pom- erene Act." The text of the Webb-Pomerene I^aw is as follows: Be it enacted hy the Senate and House of Bepresentatives of the United States of America in Congress assembled, That the words "export trade" wherever used in this Act mean solely trade or commerce in goods, wares, or nierchundise exported, or in the course of being exported from the United States or any Territory thereof to any foreign nation; but the words "ex- EXPORT SALES ORGANIZATION 67 zation's salesmen. The association itself used composite advertising, listing all the products manufactured by the different companies and displaying their respective trade-marks. Salesmen were instructed to be impartial in selling their products and not to push one brand to the exclusion of any others. There are undoubtedly grounds for the statements of some members of the Reardon Saw Company that this impartiality has not always been observed. Both com- port trade" sluill not be deeiiied to iiu-lude the production, naanufaeture, or selling for consumption or for resale, within the United States or any Terri- tory thereof, of such troods, wares, or merchandise, or any act in the course of such production, manufacture, or selling for consumption or for resale. That the Avords ' ' trade within the United States ' ' wherever used in this Act mean trade or commerce among the several states or in any Territory of the United States, or in the District of Columbia, or between any such Terri- tory and another, or between any such Territory or Territories and any State or States or the District of Columl)ia, or between the District of Columbia and any State or States. That the word "association" wherever used in this Act means any cor- poration or combination, by contract or otlierwise, of two or more persons, partnerships, or corporations. Sec. 2. That nothing contained in the Act entitled "An Act to protect trade aiid commerce against unlawful restraints and monopolies," approved July second, eighteen hundred and ninety, shall be construed as declaring to be illegal an association entered into for the sole purpose of engaging in export trade and actu.ally engaged solely in such export trade, or any agree- ment made or act done in the course of export trade by such association, provided such association, agreement, or act is not in restraint of trade Avithin the United States, and is not in restraint of the export trade of any domestic competitor of such association; And inovidcd further. That such association does not, either in the United States or elsewhere, enter into any agreement, understanding, or conspiracy, or do any act which artificially or intentionally enhances or depresses prices Avithin the United States of com- modities of the class exported by such association, or which substantially lessens competition within the United States or otherwise restrains trade therein. Sea. 3. That nothing contained in section seven of the Act entitled "An Act to supplement existing laws against unlawful restraints and monopolies, and for other purposes," approved October fifteenth, nineteen hundred and fourteen, shall be construed to forbid the acquisition or ownership by any corporation of the whole or any part of the stock or other capital of any corporation organized solely for the purpose of engaging in export trade, and actually engaged solely in such export trade, unless the effect of such acquisition or ownership may be to restrain trade or substantially lessen competition witlxin the United States. Sec. 4. That the prohibition against "unfair methods of competition" and the remedies provided for enforcing said prohibition contained in the Act entitled "An Act to create a Federal Trade Commission, to define its powers and duties, and for other purposes," approved September twenty- sixth, nineteen hundred and fourteen, shall be construed as extending to 68 PROBLEMS IN EXPORT SALES MANAGEMENT paiiies have advertised that their products are the best and unless the salesmen show some preference in push- ing one brand a foreign customer is apt to become con- fused over the conflicting statements of the two firms, unfair methods of competition used in export trade against competitors engaged in export trade, even though the acts constituting such unfair meth- ods are done without the territorial jurisdiction of the United States. Sec. 5. That everj^ association now engaged solely in export trade, within sixty days after the passage of this Act, and every association entered into hereafter which engages solely in export trade, within thirty days after its creation, shall file with the Federal Trade Commission a verified written statement setting forth the location of its offices or places of business and the names and addresses of all its officers and of all its stockholders or mem- bers, and if a corporation, a copy of its certificate or articles of incorpo- ration and by-laws, and if unincorporated, a copy of its articles or contract of association, and on the first day of January of each year thereafter it shall make a like statement of the location of its offices or places of business and the names and addresses of all its officers and of all its stockholders or members and of all amendments to and changes in its articles or certificate of incorporation or in its articles or contract of association. It shall also furnish to the commission such information as the commission may require as to its organization, business, conduct, practices, management, and relation to other associations, corporations, partnerships, and individuals. Any asso- ciation which shall fail so to do shall not have the benefit of the provisions of section two and section three of this Act, and it shall also forfeit to the United States the sum of $100 for each and every day of the continuance of such failure, which forfeiture shall be payable into the Treasury of the United States, and shall be recoverable in a civil suit in the name of the United States brought in the district where the association has its principal office, or in any district in which it shall do business. It shall be the duty of the various district attorneys, under the direction of the Attorney General of the United States, to prosecute for the recovery of the forfeiture. The costs and expenses of such prosecution shall be paid out of the appropriation for the expenses of the courts of the United States. Whenever the Federal Trade Commission shall have reason to believe that an association or any agreement made or act done by such association is in restraint of trade within the United States or in restraint of the export trade of any domestic competitor of such association, or that an association either in the United States or elsewhere has entered into any agreement, understanding, or conspiracy, or done any act which artificially or intention- ally enhances or depresses prices within the United States of commodities of the class exported by such association, or which substantially lessens com- petition within the United States or otherwise restrains trade therein, it shall summon such association, its officers, and agents to appear before it, and thereafter conduct an investigation into the alleged violations of law. Upon investigation, if it shall conclude that the law has been violated, it may make to such association recommendations for the readjustment of its business, in order that it may tliereafter maintain its organization and man- agement and conduct its business in accordance with law. If such association fails to comply with the recommendations of the Federal Trade Commission, said commission shall refer its findings and recommendations to the Attorney General of tlie United States for such action thereon as he may deem proper. For the purpose of enforcing these provisions tlie Federal Trade Com- mission shall have all the powers, so far as applicable, given it in " An Act to create a Federal Trade Commission, to define its powers and duties, and for other purposes." Approved, April 10, 1918. EXPORT SALES ORGANIZATION 69 romaiii indecisive, and fail to place an order for the product of either firm. One group of the directors of the Reardon Company is more or less of the opinion that an export association formed under the Webb Law would work satisfactorily in the export of grain or some other raw material ; they are even willing to admit that in the case of non-compet- ing and allied lines such an organization might function satisfactorily. The other faction states that although the present arrangement has not worked out well when viewed from only this angle, still many advantages, such as the foreign price agreement, have accrued from mem- bership in the association and that this arrangement would work out satisfactorily in the end if the present plan could be modified and both companies induced to take a long-time view of the development of their trade abroad. After belonging to the association for several years these men are loath to have the company go back to the old method of relying for orders upon commission houses, foreign -representatives, and one or two of the firm's o^vn salesmen. The directors, as a body, are therefore not in accord ^\dtli each other and would like to be advised as to what steps to take to remedy the present difficulty. Problem 12 WiNTHROP Company — Cooperative Export Department; Combination Export Manager* The AVinthrop Rubber Company recently received a proposal from a well-known export manager that it join with four other manufacturers of allied lines in estab- lishing a cooperative export department in New York City. This firm exported last year about $92,000 worth of women's rubber gloves and rubber-soled shoes through coimnission and export houses. The company is small *See Wyman, Export Merchandising, Cliapter IX ; Hough, Practical Exporting, pages 105-108; also Export Trade and Exporters' Eeview, Feb. 28, 1021, page 24. 70 PROBLEMS IN EXPORT SALES MANAGEMENT and has never develo])ed an export department, since it was not thonght worth wliile because of tlie firm's small volume of foreign l)usiness. Consequently this work has been handled by the domestic sales organization with more or less indifference, and mistakes in tilling orders, making out the proper papers, and securing translations have not been infrequent. By forming a cooperative export department the par- ticipating companies "would divide the cost of a high sal- aried export manager and export office. The personnel of such a department would be much better than the com- pany could secure alone, since the cooperative depart- ment could afford to pay higher salaries. Such an organ- ization would also be able to employ experts to handle merchandising, freighting, accounting, translating, grant- ing of credit, and settling of claims. By operating alone, however, the company could not maintain a New York office with the advantages of securing mail a day or two sooner, investigating the adequacy of proper packing and stowing of the goods, and in making last-minute correc- tions. The allied lines of men's and women's felt slippers, rubbers, shoes, and boots manufactured by the companies with which the Winthrop Company was to cooperate have similar trade outlets. Consequently another under- taking that the cooperative export department could carry on, which one manufacturer could not atford to finance alone, was that of making a market analysis in foreign countries for their product. A cooperative export department is different from an organization under the Webb Law, since a manufacturer does not have to deal through a third party. The manu- facturer does not lose his identity at any time ; all letters to his customers are written on his own letterhead and signed by the head of the cooperative export department as export manager for each company. The use of such an organization would not in any way change the present methods of handling foreign orders, since it is intended to be used as an adjunct to commission houses and other EXPORT SALES ORGANIZATION 71 agencies already in operation ratlier than to displace them. Based on last year's foreign sales, it has been esti- mated that it would cost the Winthrop Company about $250 a month for its share of the expense of the coop- erative export department. This would not include an extensive market investigation or other special service which would have to be financed seyjarately. At present the managers of the firm are skeptical of the ability of one export manager to serve so many interests. Fur- thermore, unless all manufacturers agree to carry on trade investigations, they are convinced that it would be impracticable, since the cost would be too high for one or two companies to stand alone. Although every manu- facturer has the privilege of withdra\^ing at any time and returning to his old method of exporting, there is also the possible danger that such a plan might leave one or two companies financing the ofl&ce. Should the Winthrop Company join in forming a cooperative export department? If not, could the Win- throp Company export direct? What type of organiza- tion would be advisable? Problem 13 Motor Accessories Corporation and Forest Machine Company — Adapting Export Organization to Product and Resources (a) The Motor Accessories Corporation, which makes a line of electrical fittings, portable searchlights, and similar automobile accessories, possesses a line-and-statf organization of which the chief active official is the gen- eral manager, to whom report the plant superintendent, the factory superintendent, and the sales manager. These officials meet daily as a planning committee. The annual sales of the concern amount to $500,000. The sales organization of the company consists of the sales manager Avith four assistants in the home office, who 72 PROBLEMS IN EXPORT SALES MANAGEMENT have been assigned various duties — one in charge of advertising, another in charge of correspondence, a third credits, and the fourth a general assistant — and six traveUng salesmen covering the six sales districts into Avhich the United States is divided. The company sells exclusively to automobile accessory jobbers, mail-order houses, and automobile manufacturers. Its advertising is confined to automobile trade journals, which are read by jobbers. Although many of the accessory jobbers have retail stores of their own, the Motor Accessories Corporation has never felt it possible to go directly to the retailer because of the great expense entailed and the small resources of the company. Nevertheless, the company is not fully satisfied with its jobbing representatives and looks with longing toward the foreign field as one offer- ing a more profitable market. While it has been sug- gested that consumer advertising might bring domestic jobbers in line, the officials of the company feel that the amount which they could appropriate for direct con- sumer advertising would be so small as to have little effect, while larger concerns could easily overshadow such advertising. Tiie officers of the company wonder whether the $5,000, which might be appropriated during the first year for the building of foreign sales, w^ould be sufficient to bring returns in export business within a reasonable length of time. If it is decided to undertake direct export, what organ- ization measures would be recommended under the con- ditions? . (b) The Forest Machine Company manufactures forty different types of w^oodworking machines including plan- ers, surfacers, niolders, antoniatic knife grinders, and trim saws. Machines range in price from $1,000 to $9,500, vary in weight from 2,000 to 30,000 pounds, and are sold to saw-mills, planing mills, furniture factories, and other manufacturers of wood products. In the domestic market the company sells mainly through its o\vi\ branches, but up to the present has done EXPORT SALES ORGANIZATION 73 no direct foreign business though the excellence of its machines and the reputation it has achieved in the do- mestic market have undoubtedly been the reasons for the orders which it has not infrequently received from export houses in New York. These orders have been tilled upon the same terms as those prevailing in the case of domestic customers. The increase in the volume of sales to such houses, the drop in domestic demand, and other factors have caused the board of directors to de- cide to establish a direct exporting organization. The company is in good financial condition, and any amount necessary for rapid development of a permanent and profitable business can be appropriated from surplus until such time as the foreign business can recoup the developmental expense. An export counselor has been asked to propose an or- ganization plan. What type of organization should he recommend 1 Problem 14 Cotton Braid Associates— Division of Sales Organization By Territory or By Goods The Cotton Braid Associates is a corporation recentlv formed by a number of manufacturers to further the sale of their products abroad. Their merchandise numbers over 3,800 different items of findings, including a com- plete line of tapes, braids, beltings, suspender webbing, suspender buckles and metal parts, elastics, shoe laces and shoe linings, thread of all kinds, ribbons, and many articles of a similar nature. In addition to its own sales force who will call on the trade, the company will deal through manufacturers ' agents in order to have a repre- sentative on the ground at all times. It is intended to sell these articles direct to the consumer in Europe and Latin America, sales being made to small retailers as well as to manufacturers, large department stores, and import houses. 74 PROBLEMS IN EXPORT SALES MANAGEMENT Because of the large number of diversified items and the different groups of customers to which the corporation intends to sell, the Cotton Braid Associates are facing the problem of whether they should attempt a sales division by territories or by products. To give one salesman 3,800 items to sell is almost certain to result in favorite lines being pushed while others are almost forgotten. Some of these lines may be sold to clothing manufacturers, others to suspender, garter, or shoe manufacturers, and still others to department stores and general retailers. Each class of customers has liis own problems to consider and rarely can a salesman be found capable of selling ribbons and tapes to a department store in the morning, shoe laces and linings to a shoe manufacturer in the early afternoon, and braids and other findings to a clothing manufacturer still later in the day. In granting exclusive agencies to handle its products, the corporation is faced with, a similar problem. A do- mestic sewing machine company might have a large ware- house in Mexico City and grant exclusive agency rights to manufacturers ' representatives in the surrounding towns ; but if the Cotton Braid Associates should open a ware- house in a foreign city, carrying almost four thousand dif- ferent items, it would have thousands of dollars tied up in surplus stocks. As for granting an exclusive agency for the entire line to one representative in each district, the corporation may be faced with the fact that no one representative can cover all classes of customers any bet- ter than could its own sales force. For these reasons it has been suggested that the Cotton Braid Associates should divide their sales organization according to the product sold> so that one group of salesmen and man- ufacturers' representatives would handle the retail trade, another the clothing manufacturers, still another shoe, suspender, and garter manufacturers, and a fourth the im]oort and wholesale houses. Although on the surface the division of the sales or- ganization according to products appears to be satisfac- tory, it has a number of disadvantages which are largely EXPORT SALES ORGANIZATION 75 overcome by a division according to the territory covered. In the first place, many of the same classes of merchan- dise are sold to retailers, wholesalers, and manufacturers so that these different lines overlap and all salesmen would be required to carry a number of the same products. Althouoh industries are frequently congregated in large centers, all classes of customers are distributed over mde territories so that much of the same ground would be cov- ered by all salesmen. Since it has been estimated that the expenses of the company's foreign salesmen average about $25 a day, it is evident that any unnecessary dupli- cation of effort would be an expensive error. To lower the sales cost it is planned to establish local representatives wherever possible, using the company's salesmen to assist in introducing the line, to help the agent close difficult orders, and to instruct these repre- sentatives in aggressiv^e selling methods. Under the plan of dividing the sales organization according to products it would be necessary to select several manufacturers' representatives in each city or district, each of whom would distribute a part of the complete line. Although it is almost always possible to tind at least one first-class manufacturers' representative, frequently it is impossible to find several agents in one town who are equally good. Since the entire line would thus be divided among several different agents, the amount of merchandise sold by any one representative would scarcely be sufficient to arouse his interest in pushing the Associates ' goods and the con- trol of sales efforts would be rendered difficult. In contrast to this situation, if the sales divisions were based upon territories, one successful agent would be selected in each district ; he would be given the exclusive rights of merchandise in his territory and held strictly ac- countable for results by one of the company's salesmen, who in tuni would be held responsible for the volume of sales in the country to which he was assigned. Overlap- ping of lines and duplication of effort would thus be avoided, expenses would be cut to a minimum, and the 76 PROBLEMS IN EXPORT SALES MANAGEMENT control of sales efforts would be rendered easier through the definite fixing- of responsibility for results upon one man in each territory. Problem IS American Export Corporation — Organization from Territory OR Product Standpoint The American Export Corporation was formed during the war for the purpose of buying and shipping food sup- plies to the allies. Later the export of grain, hay, and other forage for array horses proved profitable and a grain and forage department was formed entirely sep- arate from the food supply di^"ision. At this time South America, which was cut oft" from receiving materials from Europe, was in need of many chemicals and chemical compounds and a separate chemical department was ac- cordingly established. After the war the food supply and forage departments were discontinued, but a demand for wire and cable in the Latin American countries and China for lines of communication and aero tramways, as well as for other uses, led to the establishment of a wire and cable department. There was also a growing demand for farm machinery in parts of Europe and in Argentina, Para- guay, Uruguay, and Brazil, and again a distinct depart- ment was organized to handle this line. Although these departments were all parts of the American Export Corporation and were under the same management with headquarters in New York, they grew up more or less individually, almost as separate com- panies as far as foreign distribution was concerned. No branch offices were maintained and salesmen were sent out by the ditferent departments from the New York of- fice. With the falling off in exports after the war, losses were incurred and it was evident that some change must be made to avoid the excessive costs of duplication. Nevertheless no change has been attempted to date be- cause of the opposition of the heads of the different de- partments, who are convinced that only a steel man can EXPORT SALES ORGANIZATION 77 sell or handle steel and onl}^ a chemical expert can handle chemical compomids. The first plan submitted to the directors of the corpora- tion is absolutely opposed to the present system. Each country or group of countries would be organized into zones according to the following basis : Zone 1 Czecho-Slovakia Jugo Slavia Zone 2 France Zone 3 Argentina Zone 4 Brazil Zone 5 Chile Peru Zone 6 Venezuela Colombia Ecuador Zone 7 China A branch sales office which would be established in each zone would have at its head a man thoroughly ac- quainted with the customs, languag'e, and needs of the people in his territory. This branch manager would be directly responsible to the general manager in New York for results in his zone. The salesmen would be selected because of their familiarity with the market and knowl- edge of the export trade rather than for any expert knowledge of the product. Instead of the organization being made up of several watertight departments each concerned with selling its own product, it would be com- posed of merchandise men with a thorough knowledge of export methods, organized into zones according to the territory which they were to cover. Although these sales- men would have but little technical knowledge of the prod- uct which they sold, it was pointed out that the great ma- jority of the exports of the company were for ordinary commercial Uses that did not require highly technical 78 PROBLEMS IN EXPORT SALES MANAGEMENT training to sell, altliougli the classes of customers buying each of these products varied widely. The other plan that is contemi)lated is the combination of the present method with the zone organization. Each zone would have at its head a capable merchandise man thoroughly familiar witli market conditions in his zone, experienced in export methods and located at a strategic center. The salesmen under him, however, would be ex- perts, each highly trained i-n his own particular line. In the handling of sales, securing of orders, and building up of a permanent clientele they would be responsible di- rectly to the zone manager, who would be a])le to make decisions with a full knowledge of local conditions. In reporting changes demanded by customers and the gen- eral tendency of each particular trade, the salesmen would report through the zone manager to their depart- ment heads in New York City. In this manner the mer- chandise and sales problems would be handled by a mer- chandise expert, and technical questions and research work w^ould be handled l)y men with technical training, although this plan would require a larger staff of men and be more expensive to maintain than the organization provided by the first plan. Which pkm should be adopted by the American Export Corporation ? Problem 16 The Export Executive A prominent export manager, in discussing the rela- tion of the export manager to the domestic sales man- ager, in Export Trade and Exporters' Review, says that a capable export manager cannot specialize on any one line of work, but must be familiar in a general way with every division of the business. "He must know how to develoj) foi'(M<>u sales, he inust be conversant with foreign advertising]^ problems and nnderstand foreign credits and collections. lie shonld know thoroughly EXPORT SALES ORGANIZATION 79 commercial geography, international law and foreign tariffs. He must know the technique of handling exj^ort shipments and must be endowed with an unusual amount of patience in reach- ing an understanding of the psychology of the foreign buyers. Seldom does a domestic official or executive, whose mind is occupied principally with domestic conditions, know very much about many problems that exist abroad. As an example : the domestic sales manager's problems are to market the merchan- dise manufactured by his company in the United States through the customary channels employed by the line he is handling. It may be marketing through jobbers, through exclusive dealers, direct salesmen or by mail. His problems are the same in New York State as thej^ are in Illinois. The customs of the people are alike, the language is the same, and the general sales methods are uniform. The domestic credit man can pursue the same methods in extending credit or making collections in Louisiana as in Maine. He can observe the uniform terms laid down by the house, and when confronted with a particularly difficult collection problem, he may seek the advice of his local attorney or, perhaps, refer the collection to his traveling salesman or branch office on the ground. The domestic traffic manager ships his goods by rail with the exception of coastwise steamers, and after placing the merchandise on the freight cars or delivering it to the express company, his troubles are ended. The advertis- ing manager, in turn, may develop one type of advertising and secure a tremendous circulation in the United States through magazines and newspapers. Now, let us turn to the export manager. We find that his problems are considerably multiplied. Sales methods differ in various parts of the world. In some countries he may establish branch offices ; in other countries he may find it expedient to sell through jobbers who will distribute to the local dealers; again, there are countries or cities where exclusive agencies may be made, and in some out-of-the-way places he finds it necessary to solicit business by mail. Only the larger institutions are able to employ sufficient traveling representatives to represent properly the line in foreign fields. He finds many varying types of peoples and must handle the Latin in a different manner from the Scandinavian or the Oriental. His advertising problems are complex because of the different types of people he attempts to reach, the many languages that are used in various parts of the world, the many classes of periodicals and the difficulty in selecting those that are of the right character in which to"^ ex- ploit his line. He must find many sources from which to secure information and trade tips. He does not have the same facili- ties for obtaining credit information that are found in this country and must operate entirely along different lines, not only 80 PROBLEMS IN EXPORT SALES MANAGEMENT in passing his credits but in making his collections. His traffic problems are entirely different from domestic, as, after the goods arrive at the seaboard from the factory, he mnst exercise a great deal of care in properly haiulliiig shipments or the pos- sibility of financial loss occnrs. While he may have an experi- enced traffic man to handle the detail, the export manager shonld be familiar with commercial geography, steamship lines, methods of transportation in foreign countries, export packing, nmrine insurance, tariffs, consular regulations and many other details. It is easily seen, therefore, tliat the export manager is really a general manager of the foreign division of the business, and in his own dominion must be as versatile and well posted as the general manager of the entire business. In order that the ex- port manager secure the best results, he should not be under the control or subject to the rules and regulations of the domestic executives. He should be given full authority to conduct export business independently and shoidd stand or fall upon his own record. ' ' To what extent is the contrast drawn between domestic and export sales managers justified? EXPORT SALES ORGANIZATION 81 \j Problem 17 Hardee Hat Company — Developing Export Manager from Own Organization versus Securing Manager Outside The Hardee Hat Company is confronted with the prob- lem of securing an export manager who can build up an export department. The decision to relieve the domestic sales manager of the duty of handling foreign orders was reached almost two years ago, but no steps were taken to bring this decision to realization. In fact, matters would probably have continued to run in the old way had not the firm come to realize the need for other markets in order to increase its sales and to stabilize its production load. For several years this firm has been filling a small num- ber of foreign orders, most of which have been sent in by commission houses and a few manufacturers' agents who have been representing the company in Mexico, Cuba, and parts of South America and Australia. The company has never really tried to secure large sales abroad, being- content to feel out the market in a general way and to use the few orders it did secure to fill in the gaps between do- mestic orders. Mistakes have occurred from time to time because it has been necessary to have orders received in Spanish interpreted by a translator who was not familiar with the hat business, and the production and shipping departments have occasionally been careless in comply- ing with foreign specifications. As a result the com- pany's export business cannot be considered highty suc- cessful. In the future it is planned to assist commission houses and manufacturers ' agents in securing foreign orders by using a small amount of foreign advertising, but the com- pany wishes to secure an export manager to build up its export business efficiently instead of practically ignorino- it as has been done in the past. Two alternatives are be- ing considered: should an export manager from within the organization be developed or should the services of an outsider who is experienced in the foreign field be secured? Mr. Daniels, one of the sales manager's assistants, is extremely desirous of getting into export work. He is 82 PROBLEMS IN EXPORT SALES MANAGEMENT a college graduate, about twenty-eight years old, and lias been with the company for almost six years. He served in France with the American army during the war, but aside from this has never been outside of the United States. He speaks P'rench and has a smattering of German, Be- fore being called off the road to act as an assistant to the sales manager, Mr. Daniels had been a successful sales- man in the domestic field and is familiar with the com- pany's product and the limitations of its factory. He has proved to be capable in his present position," is am- bitious to get ahead, and by making him export manager the company would insure his remaining with the firm. Of the men outside the company's organization who are being considered for the position, Mr. Livermore is the most promising. He is a man of about thirty-two years of age, is a high school graduate and has spent the greater part of twelve years as a textile salesman in Mex- ico, Cuba, and parts of South America. He has had no experience in selling hats, however, and is not familiar with the company's product. Because of his experience Mr. Livermore understands the requirements of the ex- port business and has an intimate knowledge of the mar- kets in the countries in which he has been a salesman. He speaks Spanish fluently; his w^ife is a South American; and he is thoroughly familiar and in sympathy with the buying customs and habits of Latin America.* *The qualifications, duties and responsibilities of the export manager are discussed in Hough, Practical Exporting, pages 97-103; 105-108; in Vedder. American Methods in Foreign Trade, Chapter VI; in Wyman, l']xport Merchandising, Chapter VIII; and in the following periodicals: The World's Marlcets. Mar. 1919, p. 21 — "The Export Manager — A Candid Criticism." Apr. 1919, p. 25 — "The Export Manager — -An American Asset." Apr. 1919, p. 26 — "The Export Manager — A Critic Answered." June ]919, p. 17 — "Should the Export Manager Travel Abroad?" Sept. 1919, p. 32 — "The Travel Problem Again." Nov. 1920, p. 41 — "Practical Exporting." Dec. 1920, p. 26— "Practical Ilxporting. " Jan. 1921, p. 28— " Practical Exporting." Apr. 1921, p. 34 — "Exporting Managers' Convention." Export Trade and Exporters' Review. Feb. 28, 1921, p. 24 — "The 'Combination Export Manager'." Mar. 19, 1921, p. 11 — "What I Expect from My Export Manager." July 2, 1921, p. 8 — "The Export Manager's Authority." EXPORT SALES ORGANIZATION 83 Which man should the Hardee Hat Company select as an export manager? If neither candidate is desirable, how should other candidates be secured ? Problem 18- Williamson Company — Employing Foreign Regulation Expert Many foreign governments depend upon customs duties on exports and imports for a large portion of their rev- enue and consequently have many laws and regulations governing the admission of merchandise to their country. In the more recently developed countries in South Amer- ica, where hundreds of tons of merchandise are imported every year, it is important that a standard method of marking be followed. In Chile, for instance, the law re- quires that all goods shipped into the country have the name and address of the consignee stencilled on the out- side of the container instead of being marked ^^^th a brush or otherwise. In case an American firm fails to obey this law, the customer who buys the goods must pay a fine. Recently a Canadian law was passed requiring that any package imported into the Dominion show on the outside the product which it contains and the country in which it was made. The regulations of the different Aug. 6, 1921, p. 9— "What an Export Manager Should Know." Aug. 20, 1921, p. 9— "What an Export Manager Should Know." Sept. 3, 1921, p. 11— "What an Export Manager Should Know." Sept. 17, 1921, p. 11— "What an Export Manager Should Know." Oct. 8, 1921, p. 8— "What an Export Manager Should Know." While the information required for deeision differs from that in domestic . sales transactions, it may Avell be argued that the qualifications of a good export sales manager are the same as those of a good domestic sales mana- ger. It may be further argued that the desirable qualifications of a sales executive are the same as those of ;uiy business executive. In this connec- tion the statement of Mr. Gowin in his book, TJie Selection and Training of the Business Executive, regarding the chief requisites of the executive is of interest. On the basis of investigation carried on among 276 firms, he found that (omitting education and experience) the chief requisites in order of rank were judgment, initiative, integrity, organizing ability, health, perseverance, aggressiveness, openmindedness, cooperativeness. competitiveness, control of emotions, refinement, appearance, and sense of humor. It is evident that the r;uikiiig miglit be changed for particular openings, although the change would be one of degree rather than one of kind. 84 PROBLEMS IN EXPORT SALES MANAGEMENT countries are frequently changed ; old ones are abolished and new ones take their place. It is important therefore that a manufacturer selling goods in foreign countries keep in touch with the customs regulations and laws gov- erning exports. When the AVilliamson Company first entered foreign trade, it was comparatively easy to keep track of these regulations, since it exported only to Cuba, Mexico, "West Indies, and Cauada, Moreover, with only five people handling the office and routine of the export department, each person could easily keep more or less familiar with new regulations. In selling roofing paper, the chief prod- uct of the Williamson Company, there is a seasonal variation in sales, depending upon the building season in each country. Usually, therefore, the export department was able to concentrate on one or two countries at a time. Now, however, the foreign business has grown, until twenty persons are employed in the export department. The company sells its roofing paper to New Zealand, Australia, New South Wales, Japan, Java, Philippines, Cuba, Mexico, Central and South America, Bermuda, Gold Coast Colony in Africa, Sweden, Holland, England and Canada. The export department must therefore be- come familiar with many more regulations than previ- ously. In addition, since government revenues have fallen oif, new customs regulations and laws are being jjassed in a number of foreign countries. Because it is more difficult to keep the larger force of the export de- partment in touch with these latest requirements, occa- sionally mistakes liave occurred because the proper care was not taken in prejjaring a shipment and in filing the customs declaration and other documents according to tlie regulations. It is ])i'o])ose(l tlierefore that a foreign track' specialist sliouhl ))e eni])loyed, wliose main work would be to keep iiil'oi-ined on all export regulations of Foreign count I'ics, and to see tli^d the instructions for packing, shipping, billing, and other documentary routine confoiin to these regulations. Thei'e lias been considerable ol)jection to the employ- ment of such a specialist on the part of a immber of the EXPORT SALES ORGANIZATION 85 people in the export department. They say that it is a fine thing to speciaUze in packing- merchandise, since one man can wrap the goods in heavy paper and another nail up the crate ; still another can stencil, and the fourth can load the goods into the freight car. In the case of em- ploying a specialist on exports, however, the whole or- ganization should thoroughly understand export regula- tions. If this information is concentrated in the hands of one man all the others in the department will no longer consider it their business to keep in touch with the de- velopments in the foreign field, and in case the specialist on regulations is absent or leaves the Williamson Com- pany to accept a position elsewhere, there would be no one in the department who would be acquainted with these regulations. Furthermore, exporting manufacturers generally do not use such experts. It is claimed that it would be much better to develop some specialization among the members of the export department, some specializing in Latin- American markets, others in Far Eastern. If a specialist is employed, would it be necessary to give him final supervision over all phases of packing and shipping, making him supervisor of export orders ? Problem 19 The Riley Company — Handling of Foreign Correspondence It has been a long-established custom of the Riley C-om- pany to have the credit department handle all correspond- ence with foreign customers, whether dealing with sales. delivery or credit. This department has no representa- tives in the field but deals with most of the customers through correspondence, and it a])pears to be the logical place to concentrate this work. By making this depart- ment responsible for all the foreign correspondence, du- plication of work has been avoided, since one letter may combine the information formerly contained in three. 86 PROBLEMS IN EXPORT SALES MANAGEMENT sent by the sales, traffic, and credit departments. This policy also avoids the danger of contradiction between the different departments. Before the correspondence had been concentrated under one head it frequently hap- pened that the sales department would promise imme- diate shipment, only to have the traffic department write a few days later saying that the shipment could not be sent for several weeks: Because of foreign government regulations regarding packing, stencilling, and duties, and the fact that customers are frequently not familiar with American products, shipping units and their dimensions, foreign correspondence is of a type different from the domestic, and the company believes that by concentrat- ing this work under one head more efficient results would be secured. Frequentl}^ however, the credit department is not able to answer a letter regarding date of shipment without consulting the traffic department. Occasionally, because of misunderstanding, promises are made that cannot be kept. When complaints are made by customers alleging poor service, it is frequently a matter of dispute between the traffic and credit sections as to which is at fault. Fric- tion and ill will have therefore developed and complete cooperation between these two departments is lacking. In the matter of sales correspondence there is also a feeling of dissatisfaction on the part of the sales depart- ment. Often a salesman has almost persuaded a prospect to buy and a follow-up letter is needed to keep the com- pany's product and name in the mind of the customer until the salesman can call again and close the sale. The sales manager maintains that not infrequently the credit department has nullified the work of his representatives by sending out a formal, stiff letter which was not helpful in producing sales. Even when it has been proved that the credit department has written satis- factory letters, the sales manager still feels that his department might have done a little better, since the credit department is primarily interested in the matter of credit and surety of payment rather than in the pro- motion of sales. EXPORT SALES ORGANIZATION 87 It has been jDroposed therefore to change the present poHc}^ and allow each department to write its o\vii letters to foreign customers ; but although this step would tie up the correspondence with the work of the individual de- partments, many objections have been raised. In the first place, the company is faced with a small rate of profit on its foreign business. It is anxious therefore to keep expenses as low as possible. The credit manager says that one of the most important factors in foreign trade is the securing of payment for goods that have been de- livered ; no matter how many sales are made, or how care- fully the goods are routed, unless payment is received the efforts of the company are wasted. This man is sure that if the other departments would cooperate in giving the information which they would like to have incorporated in the letters sent out by the credit department, the pres- ent system would be satisfactory. Should the Riley Company continue to have all letters to foreign customers handled by the credit department f Another suggestion is to have the correspondence in various languages in a separate department subject jointly to the credit and the sales departments. From an organization point of view is this desirable! Problem 20 Reardon Company — Dividing Line Between Domestic Sales AND Export Departments In organizing its export department the Reardon Com- pany is faced with the problem of deciding whether its domestic department should continue to handle the com- pany's sales in Mexico and Canada, or whether this ter- ritory should be given over to the new export department. The company manufactures printing machinery which it distributes entirely through local agents. In the past the business, which has been small, has been han- dled by the domestic sales department, the assistant 88 PROBLEMS IN EXPORT SALES MANAGEMENT sales manager devoting himself to the building up of this end of the business. Now, however, foreign sales have been increased and the company is selling its products in a number of Latin American countries, China, Philippine Islands, Far East, and to some extent in England, France, and the Scandinavian countries. It has been de- cided, therefore, to build up an export department with the assistant sales manager at its head. The sales manager is loath to release any territory to the new department and has told the board of managers that the domestic sales division should continue to handle all Canadian and Mexican business. These two countries are our next-door neighbors and seem no more foreign than certain sections of our own country. Parts of Canada have frequently been covered by the company's salesmen from Buffalo and Utica almost as well as by those who had their headquarters in Toronto. It is no more difficult for a salesman to go to Canada than it is to travel in the States. The people of the two countries are similar and the business methods are the same. Credit conditions are good, and the domestic department is already dealing with Canadian agents. Furthermore, machines can be loaded into freight cars at the factory and shipped to a Canadian destination without changing cars in the same manner as to any town in the United States. Much the same condition holds true in the case of Mex- ico. There is considerable trade across the border from El Paso, Laredo, and other points, since most of the im- ports into Mexico are made from the United States. Many American citizens have gone into that country through the development of the oil fields, mines, and other in- dustries. Mexican railroads connect with American lines the same as the (Canadian roads. The sales manager is convinced, therefore, that his department should continue to handle both Canadian and Mexican business. The new export manager, however, lias put in a sti'ong ]jlea that the sales to these countries should be liandled by the export department along with the business to any other foreign country. In the case of Mexico the cus- toms, language, and buying habits of the people are en- EXPORT SALES ORGANIZATION 89 tirely foreign to the United States. Credit is notoriously bad in certain sections, and the company has lost money in the past because of its failure to appreciate local con- ditions. Travelling is much more difficult than in the United States. Not only must a salesman speak Span- ish, but he must be of a different type from the average salesmen if he is to secure the business. In the opinion of the export manager, sending a salesman to Mexico is the same as sending a salesman to Portugal or India. Although the great majority of Canadians speak Eng- lish, a substantial immber of the population are French- Canadians and speak French almost exclusively. The customs laws and other regulations must be complied with as in shipping goods to any other foreign country, and the export manager firmly believes that his department should have charge of the sales in all countries outside of the United States. The same question has arisen in regard to selling the company's products in Porto Eico, Hawaii, Alaska, the Philippine Islands, and other American possessions. The domestic sales manager asserts that his department would naturally handle all sliii)ments to United States possessions, since they have practically the same customs laws and Government regulations as the States. The ex- port manager says, however, that goods shipped to these territories must be packed for ocean transportation the same as goods to South America or the Far East. More- over, in Porto Rico and the Philippine Islands the busi- ness conditions are distinctly foreign as compared with the United States. Should the Canadian and Mexican business be handled by the domestic or export sales departments? Which department should handle shipments to Porto Rico, Alaska, Hawaii, Philippine Islands, and other United States possessions? 90 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 21 Merrill Company — Cooperation of Domestic Sales and Export Departments The domestic trade of the Merrill Company, cotton mill sales agents, had revived in the early part of 1921 and the foreign sales manager was having difficult}" in obtaining his allotted quota of goods for the ensuing year. During the preceding depression the managers of the various de- partments had taken an interest in foreign trade in order to dispose of surplus stocks, and some of the managers had considered the feasibility of making special types of goods for different markets. The Merrill Company was the selling agent for four cotton mills located in New England— one mill produced grey goods, another percales, another hosiery, and the fourth ginghams. The company was organized under four departments — grey goods, percales, hosiery, and ginghams. Each department was in charge of a manager who had been with the firm for many years and was competent to handle domestic business. About 10% of the business of the company consisted of foreign sales, which were in charge of an export man- ager who reported directly to each one of the department managers. The form on the opposite page shows the organization of the company. The president and other executives of the company have been inclined to take the attitude that the company's mills must manufacture goods primarily for the domestic market because nine-tenths of the firm's business has been mth the United States and Canada and if goods made especially for the foreign mark(^t fail to sell, the company cannot use its many outlets in the domestic field for disposing of them. The export manager has re- quested the president to have the company's mills make up orders of pique and other cotton textiles in the widths and patterns demanded in South America and the Far East, but usually orders from the United States and Canada have crowded out any special requirements of the foreign department. In the years when business is good EXPORT SALES ORGANIZATION 91 in the domestic market it frequently is impossible for the export dej^artment to secure either enough goods or goods of the right kind to satisfy the demand of foreign customers, but when the market in the United States is depressed the foreign sales department is asked to dis- pose of several times its normal volume in order to relieve the pressure on the domestic organization. The export manager has had difficulty in formulating and carrying out a foreign sales policy. It has been im- possible to plan for the future. Each department man- ager had final authority in both the domestic and foreign sale of his particular commodity. Each was interested in developing foreign sales in times of domestic depres- sion but lost interest as soon as the domestic market improved. It was also impossible to obtain a continuous production of goods adapted to each particular market. Some markets required cloth of a special width, others required cloth of certain color, others required cloth that had been sized. The export manager was convinced that the mills could produce any kind of cloth desired by any market. He was familiar with the English cotton mills, and with the Chinese, Indian, and Mill Mill Mill Mill L_ 1 1 1 1 Merrill Company 1 II 1 1 1 1 Grey Goods Department Percale Department Hosiery Department Gingham Department 1 1 1 1 1 II Foreign Trade Department FORM 4. Merrill Company — Organization Chart 92 PROBLEMS IN EXPORT SALES MANAGEMENT Latin American markets, and was certain that the Eng- lish products could be duplicated and the English prices met. The treasurers of the mills were willing to make any kind of cloth that could be sold. In order to improve the situation, the export manager is attempting to have the Merrill Com- pany budget its sales every six months in the domestic market as well as in the foreign field. This budget would be made up at least six months in advance, based on the sales of the corresponding season for the preced- ing year, a forecast of business conditions of the coming- season, and an estimate as to the amount of orders the different branches would be able to secure. This plan would give in detail estimated sales by materials and patterns as well as covering the total volume of orders that each branch expected to secure. In the case of the export department this budget would cover estimated sales for each country as well as by materials. Each kind of cloth would be described minutely, giving the pattern, width, weight of material, number of picks to the inch, as well as other specifications which would be needed by the mills. All cloth of one kind would be made at once, so its manufacture would be as economical as possible. Even if certain orders for special patterns might be filled at a loss, this plan would permit the foreign department to Iniild up a clientele tliat would purchase from the Mer- rill Company rather than through competitors and would make it possible for its salesmen and agents to satisfy their customers that \h(' company was i-eally trying to cater to their wants. What change should have heen made in the organiza- tion of the Merrill Company to develop its foreign trade? EXPORT SALES ORGANIZATION m Problem 22 FisKE Company — Advertising Agency vs. Development of Foreign Advertising Department The Fiske Company exports perfumes, powders, creams, and other toilet preparations, most of which are distributed through exclusive agents. In the United States the company has advertised extensively in publi- cations with a national circulation and has built up a capable advertising department. Its largest annual volume of foreign sales was about $280,000, but within the past year or two this point has not been reached and the company has decided to advertise abroad in an at- tempt to build up its foreign distribution. The domestic advertising department is not familiar with conditions in the foreign iield, it has no translators on its staff, and it has no foreign connections through which to bargain with foreign publications for low advertising rates. The com- pany has taken a long-time view of the situation and in- tends to go into the foreign advertising field to stay. It is now considering whether it should organize a foreign advertising department of its own or avail itself of the services of a foreign advertising agency. The Gladstone Foreign Advertising Agency, as well as similar advertising firms, has been interested in securing the foreign advertising business of the Fiske Company. After making an investigation, the Fiske people have satisfied themselves that if any foreign advertising- agency is to be selected, the Gladstone firm will be the one because of its excellent reputation among its clients. It has had considerable experience in this field and knows the pitfalls ot l)e avoided. It is familiar with the foreign publications, their vahie and limitations, and does not need to experiment with dilferent media in order to find out which ones will render the Fiske Company the services it desires. Its stat^:' of translators and copy- righters has had practical experience in handling copy that appeals to readers in South America, Australia, England, and those parts of Europe which the Fiske Com- 94 PROBLEMS IN EXPORT SALES MANAGEMENT paiiy is desirous of reacliiiig through advertising. Like other foreign agencies, the Gladstone firm receives its compensation from commissions from foreign pubUca- tions for the space which its clients use. It is to its im- mediate interest, therefore, to keep the amount of money spent by the Fiske Company as high as possible rather than at a figure which might be more economical. This agency also has the drawback of not being familiar with the company's products and would probably find difficulty in describing Fiske toilet preparations in a different man- ner from any other toilet preparations of a similar na- ture. By organizing a foreign advertising department the Fiske Company would avoid some of the evils of the ad- vertising agency. It w^ould have an organization f amihar with its products, which w^ould be interested in running an advertising campaign with a low expenditure, not owing its support to commissions received from foreign publications in which it placed its copy. Advertising in the foreign field is quite different from that in the United States. The amount of newspaper and magazine space devoted to advertising is usually smaller, even in Great Britain, than in jjublications in this country. There are fewer full page and double page spreads since many for- eigners are convinced that extensive advertising must in the long run be paid for by consumers through increased prices. It is sometimes difficult to find good media which cater to the class of people it is desired to reach ; and al- though some circularizing is done in the foreign field, it is probable that foreign advertising will not play the role that it does in the United States, at least for a immber of years to come. Because of the volume of its export sales, a foreign advertising department organized by the Fiske Company would i)robably be small. Since it could not afford to sup})ort a staff' of translators, it would Ix' nec- essary to secure one or two people with sufficient knowledge and experience to make them capal)le of wiit- ing foreign copy, making translations, and placing and checking the advertising in foi-eign pul)lications. Foreign advertising experts of this calibre would be difficult to secure and would demand a good salary. EXPORT SALES ORGANIZATION 95 What action should the Fiske Company take in han- dhng its foreign advertising! If it decides to establish its owai foreign advertising department, should it be part of the advertising department handling both domestic and foreign advertising, part of a separate export depart- ment, or independent f ^ Problem 23 Leonard Company — Should the Export or Domestic Credit Department Handle Foreign Credits?" (when the Leonard Company first entered foreign trade, it was decided to handle all foreign credits through the domestic credit department in the same manner as domestic credits. This firm sells cotton tex- tiles through its own salesmen and agents, chiefly in Latin America and the Far East. In 1920 and 1921, because of falling j^rices and unfavorable exchange rates, the company lost money, particularly in Latin America, through the failure of some of its customers to meet their obligations. Since that time, because of the difficulty in securing adequate information on many foreign firms and because of rapidl}' changing condi- tions, the credit department has adoi:)ted the policy of granting only short-time credit terms to foreign custom- ers, even those in the strongest financial condition."^ (The export manager states that as a result of business conditions in most foreign countries, unfavorable ex- change rates, and English, German, and Japanese com- petition, his sal^s have been cut almost in half and that at a time when liberal credits are needed to secure even this amount of business,^ the credit department has adopted a policy that renders the export work even more difficult. In his opinion a domestic credit organi- zation is not competent to handle questions of foreign *See the articles entitled "Practical Exporting" in The World's Markets of Nov. 1920, Dec. 1920, and Jan. 1921; also Wyman, Export Merchan- dising, Chapter XXXI. 96 PROBLEMS IN EXPORT SALES MANAGEMENT credits. (Since the amount of foreign business done by the Leonard Company is insufficient to Avarrant the estabUshment of a foreign credit department, the export manager proposes that his organization should take over this work. Through salesmen in the field the export manager should be able to secure credit reports from men who are acquainted with the actual situation affect- ing each customer, and in addition he can have at his command all the credit information now available in the credit department.^ This plan is contrary to the j^resent system of organi- zation of the Leonard Company, in which the credit department not only passes on matters of credit but also acts to a limited extent as a check upon the operatious of the other departments.^, To give the export manager powder to pass on foreign credits would be the same as giving the domestic sales manager authority to handle credits in the United States. ; The credit manager acknowledges that his course is somewhat drastic, but he says that he has been forced to take this view of for- eign trade in order to make the export business show a profit. ^ In his opinion it is better to decline nine out of ten orders, making a profit on the tenth order and the small amount of cash business that might come to the compan}^ from the other nine, than to grant credit to all ten and through the failure of one customer to meet his obligations lose enough to wipe out the profits on the whole ten. (As a compromise it has l)een suggested that the credit department should continue to handle foreign credits, but that reports from tlie export department should be given due weight. The export manager would, have his salesmen make out credit reports on all customers. Whenever he was informed l)y the credit department that a customxcr whom he considered worthy of an exten- sion of credit facilities had l)ee]i refused credit terms, he could present his report and any other obtainable evidence to the credit manager for a reconsideration of the case. This plan requires more time for the credit EXPORT SALES ORGANIZATION 97 department to give a final decision as to the status of each customer, and the resulting delays might force a number of orders to wait over for the next steamer, which would be detrimental to foreign business. Sev- eral members of the organization hold that if it is wrong in principle for the export manager to handle foreign credits, it is equally wrong for him to attempt to influ- ence the credit manager in the granting of foreign .credits. What action should be taken by the Leonard Company in granting foreign civditsl^ Problem 24 Gray Hat Company — Relation of Export and Production Departments The export department of the Gray Hat (company was not organized until it was urgently needed. For several years the company had received some foreign orders through commission houses but had given little attention to this part of the business. When the sales in the domes- tic market fell oif during a periodic slump, the company began to realize the value of foreign trade and secured as an export manager a salesman who had had a num- ber of years' experience in South American markets. Still no export department was formed until this export manager took a month's vacation, and in his absence it was found that no one in the domestic organization could handle the work. Even when the department was finally formed, everyone in the firm looked upon it as a neces- sary evil. The production department particularly was openly hostile. The si)ecial requirements and specifica- tions of foreign orders were annoying to both the work- ers and the superintendent, who disliked the fussiness of special orders tiiat interfered with routine work. When- ever possible, export shipments were the last to be made. During the recent depression the factory would have had to shut down had not sufficiently large orders arrived 98 PROBLEMS IN EXPORT SALES MANAGEMENT from Mexico, South America, and Australia. The export manager lost no opportunity to drive home to the whole factory force that the export orders were keeping the plant in operation. By explaining to the superintendent and foremen some of the conditions and customs in the different countries from which the foreign orders had come, he convinced them of the necessity of complying strictly with the specifications sent in by the export salesmen if customers were to be satisfied and to continue to send in their orders. For the first time the production department began to appreciate that the export department was to be an important factor in the success of the company. Having removed much of the nnsunderstanding that existed on the part of the production department con- cerning the reason for conforming to the specifications on foreign orders, the export manager is now attempting to bring about a closer relation between the two depart- ments. At a conference of the executives of the com- pany he cited several instances where shipments had been refused because of the production department's failure to comply with the instructions of the salesman. Au order for six hundred hats for a dealer in Mexico City, for example, had recently been cancelled and the hats returned because the brim was not rolled near the edge as directed. Because of these difficulties this man- ager requested that the export department have an inspector of its own at the factory in order to see that specifications were followed. The export manager also requested that a rule be made whereby all orders for export would have priority over domestic orders as to time of manufacture and of shipment. A delay of a day or two at the factory on a domestic order ordinarily might result in the dealer's receiving his merchandise a day later than he exjiected, but a delay of a day on an export order might mean that the shipment would miss the boat and in some instances might have to wait a month or six weeks for another steamer. Such a delay frequently means the refusal of EXPORT SALES ORGANIZATION 99 the sliipmeiit when it arrives or at least the failure of the customer to continue to order hats from the Gray Company. The production superintendent explained that he usually bunched several orders for the same kind of hats so as to secure greater economy in operation. If a foreign order Avere to be given priority over domestic orders, it would mean the breaking down of the efficient operation of the plant. The export manager agreed that his priority rule might cause some trouble, but he said that there was no use to try to do business in the foreign field unless promjDt shipments could be made. Should the Gray Hat Company adopt the recommen- dations of the export manager f Would the establishment of a committee consisting of the export manager, the general manager, and the pro- duction superintendent meeting in daily conference solve the problem! CHAPTER III RESEARCH AND PLANNING IN EXPORT TRADE THE application of scientific principles to business enterprise implies that executive action takes place only on the basis of reason and judgment, that no decisions will be made except upon the basis of such knowledge of facts and factors as is available within the time during which such decisions can be reached. If the degree of judgment exercised is the same, it follows logically that the more adequate the facts the better the decision. Business judgment is the result, the conclusion derived frcmi analysis and synthe- sis of tangible and intangible facts, many of which are incommensurable or at best can only be roughly esti- mated. In no field of business knowledge is the need for facts and the necessity for information as a basis for proper planning and operation more clearly recognized than in export trade by those who are intelligently conducting their business. Here as in other fields, however, the nature, sources, and methods of securing facts that will aid in decision require much additional study before general principles may be laid down with any degree of assurance. It is obvious that in the collection of facts we should select only those which will be useful, but vision and imaginnlion are required to foresee the types of decisions which will liave to be made and consequently know what facts will l)e useful in making such decisions. Purthermoi-e, it is p;)()r judgment which does not weigh the intangible factors together with tangible facts. It may seem in many cases that material facts are out- weighed by intangible factors, that the importance of 100 PLANNING IX EXPORT TRADE 101 the personal equation diniinislie& to a point of wortliless- iiess the collection of any facts bearing upon business problems. That, however, is an extreme opinion; but no more so than the opposing ojjinioii that facts and statis- tics are the only things to be taken into account and that human motives and human actions are not to be consid- ered if they seem to oppose the conclusions to be dra^^^l from the tangible facts. From one point of view human relations and human reactions become facts capable of measurement by the law of averages. Rarely, however, does the business man have such a mass of observation at his command. Since he is constantly dealing with too small a number to be called a "fair sample" from a sta- tistical point of view, he could not make use of such gen- eralizations if he would. It might be demonstrated that 99 per cent of foreign agents pay their bills, yet an ex- port manager dealing witli exclusive agents in various ])arts of the world could not place enough dependence upon the law of averages to dispense with careful study, selection, and supervision of his agents, realizing very well that without such procedure the percentage of defaulting agents would probably be very much larger than one per cent. In credits in particular the exporter wall not infrequently allow" impressions of that intangible set of qualities called character to outweigh the tangible facts concei'iiing the credit applicant, but no good credit man would disavow the usefulness of fact. From one ])oint of view he feels that the more tangible facts he can secure the more definitely can he appraise the intangible factors. The facts collected and selected must of course be use- ful. More than that, they must be used. Not a few con- cerns have collected vast quantities of facts and details and have not used them or have used them only after they liad become out of date. The facts which research activities aim at securing may be used in connection with every phase of export. Organization will be made largely upon the basis of opinions wliicli are the result's of con- sideration of facts regarding present operations and future developments. Export policies should be the 102 PROBLEMS IN EXPORT SALES MANAGEMENT result of careful study; that is, the consideration of facts and factors involved. The facts secured by research may be used in planning selling operations, both in the plan- ning of advei'tising in all its various forms and in the planning for sales force. In tlio training, equipment, and supervision of salesmen facts cannot be dispensed with. The available fact is pitifully small at best. Mention has been made of the necessity for fact in credits and collec- tions, but the necessary facts include not only facts concerning the condition of the individual l)ut also con- cerning the external conditions which have an influence upon the purchasing power and paying ability of the credit ap])licant. Facts are needed to determine where to sell tlu> goods and what to sell in })articular markets. Facts are needed to determine the best methods of ship- ment, to give the delivery sei'vice which is necessary for the upbuilding of substantial foreign trade. It is the business of research to secure such facts and the business of planning executives to use those facts in making plans whicli will result in the innnediate and i)ermanent main- tenaiice and upbuilding of the export enterprise. As an integral part of the l)usiness enterprise and as one of the sections which comes into direct contact with external business conditions, the export manager must not only have facts initially to determine what policies to adopt and what methods to use, but he nmst be cur- rently informed of changes in conditions which may call for changes in interpretation or even changes in formu- lation of export policies. Many concerns look upon export trade as a stabilizing factor in the l)usiness ; if it is a stabilizing factor, it is partly so because of the lack of synchronization of cyclical movements in different coun- tries. It is just as important for the export manager to know tiu' general state of business conditions in countries witii which he is doing business as it is for the (h)niestic manage)- to know the genei'al ti'end of business condi- tions in tJie domestic market. AVe arc still far from the I)oint where statistical and otiici- information, upon the basis of which the trend of bnsiness may be discerned. PLANNING IN EXPORT TRADE 103 is available for even the more important foreign mar- kets. Siicli data are collected and can be collected only in tlie more highly developed countries. As a conse- quence, the export manager's opinions upon business conditions must be formed upon less definite and less comprehensive data than the opinions of the domestic sales manager. To secure the facts for proper conduct of export oper- ations all research methods aie open to the export execu- tive, whether he does the research personality or whether he delegates it to subordinate officials or to a specialized research department. The chief sources are personal investigation, the opinions and statements of authorities and experts, corresjjoiidence and questionnaires, and lastly facts to be ol)tained from printed sources. Per- sonal investigation results iu first-hand information, subject of course to the limitations of observation by an individual and to the particular characteristics of the observer himself. Supplementary to other types of investigation, personal investigation and observation in foreign markets have a value which cannot be denied. Opinions of other personal observers obtained through special connections, sometimes through government offi- cials, are of course superior to information obtained from those who are not particularly interested in the l)usiness for which the facts are to be used. The weak- nesses of the questionnaire and of correspondence as a means of securing information from those who are in a jjosition to give first-hand information are developed in any study of statistical and research methods, but under certain conditions a very distinct advantage can be gained by the judicious use of such methods. One of the most neglected and yet along certain lines among the most valnablc sources of information are tlic printed sources of infoi'mation — l)()oks, ])('rio(licals, and pam- ])lilets — which may be classified according to the source of the material as governmental, semi-]nil)lic and private l)ublications. Information upon foreign markets and foreign trade methods is available to a business man at comparatively small cost. Government bureaus lOi PROBLEMS IN EXPORT SALES MANAGEMENT banks, business houses, periodicals and newspapers, and export organizations are all working toward the creation of an intelligent interest in foreign trade on the part of the public, aiming at the same time to give the business man a more detailed knowledge of the problems con- nected with international trade. The primary object of the Bureau of Foreign and Domestic Commerce is to assist American manufactur- ers and exporters in the extension of their foreign trade. Although the headquarters are at Washington, district offices are maintained in several of the larger cities. The vast amount of information ^vliicli the Bureau of Foreign and Domestic Commerce collects and analyzes through its hundreds of representatives in 110 countries, is made available to the exporter in two ways: first, upon request the Bureau will give any business man such information as it possesses upon the subject of interest; secondly, matei'ial of more general interest is made available in printed form through its publications. The exporter secures information as to specific opportunities, methods of conducting foreign business, and conditions in foreign countries. Among the })ublications of the Bureau are the weekly journal entitled "Commerce Reports" con- taining authoritative articles and notes received by mail and cable from consular officers, connnercial attaches, trade commissioners and others, as well as excerpts from foreign publications and commercial statistics compiled l)y the Department of Commerce. It is the medium through which information on foreign trade matters is distributed to American business men. It is available to business men through the Superintendent of Documents at the rate of $3.00 per year. Other publications of the Bureau are the bulletins on special subjects. Some pre- sent a survey of the entire worhl's markets for certain lines of goods. Others contain an intensive study of par- ticular iields. Still others furnish a general account of some country or gi-ouj) of countries. Bulletins have been issued on the cotton goods trade for almost every coun- try in the world. There are pamphlets dealing with PLANNING IN EXPORT TRADE 105 hardware, furniture, eoiistruetion materials, railway equipment, agricultural implements, electrical goods, cotton seed oil, shoes and leather, machine tools, paints and varnishes, canned goods, etc. Comprehensive hand- books have been issued on Australia, New Zealand, Rus- sia, South America, Central America, China, and other countries. A complete list of these publications may be obtained without charge from the various district ottices. There are also pul)lications of a statistical nature and those dealing with tarilt's. Since its reorganization during the summer of 1921, the Bureau of Foreign and Domestic Commerce is in a position to render even more extensive service than here- tofore. There are special divisions for the leading com- modities, each headed by a man with practical experience in the sale of those products abroad. The exporter can obtain from the Western European, the Eastern Euro- pean, the Latin American, the Far Eastern, and the Near Eastern Divisions special information as to signiticant trade conditions, connnercial regulations, the industries and resources of nations, etc. Export statistics of the United States assist the manufacturer in determining whether or not his organization is getting its share of foreign trade, while import statistics indicate the sources of raw materials. Every exporter realizes the necessity of obtaining tariff rates in force in the different foreign countries, particularly in the case of goods competing with a native product or in the case of countries that give preferential rates of duty to the goods of other countries. Information as to these rates, together with rules governing commercial travelers in foreign coun- tries, consular regulations of foreign countries, rates of internal taxes in foreign countries, and foreign trade- mark and patent regulations, can be obtained by appli- cation to the Bureau of Foreign and Domestic (^onnnerce. The divisions of commercial laws and transportation deal with questions arising in their respective tields. The Bureau maintains 27 permanent foreign offices in the important commei'cial countries of the world; these lOG PROBLEMS IN EXPORT SALES MANAGEMENT are in charge of commercial attaches and trade commis- sioners. A classified list of prospective buyers or agents all over the world, with indication as to their relative importance, is kept up to date and available for the x\merican manufacturer doing business abroad. The Bureau maintains a classified index of American mer- chants and manufacturers interested in oversea trade a]Kl supplies them without- charge with trade lists and confidential information on foreign trade opportunities. The larger banks have developed foreign trade depart- ments, and in their endeavor to build up business they have gone to great lengths in collecting and distributing- data regarding every phase of foreign trade. Informa- tion is made available for exporters upon foreign mar- kets, names of buyers, credit ratings, taritfs, export methods, conditions in foreign markets. These banks endeavor to keep in touch Avitli all the important inter- national connnercial developments and to give their customers, and others who may be interested, the latest available information. From time to time, pamphlets, bulletins, and rejjorts are issued dealing with topics of particular interest to foreign traders. ]t is evident that banks, through their corresi)<)ndents and branches, are in a position to furnish much material that will supple- ment what the government ofi'ei's. Semi-pnblie and trade organizations are also sources of foreign trade information, which should not be disre- garded. The Chanil)ers of Connnerce frequently main- tain foreign trade bureaus, which endeavor to serve im])orters and exporters in many ways. They keep cur- rent lists of importers and exporters, forwarders, and export houses and are able to give advice of various kinds and inroi-m.-iiioii as lo iiic Taciliiies offei-ed by the ]);irticnlar section. The Nalioiial Association ol' Mnnni'ncinrers also main- tains an important file of credit inronnatiim and infor- mation on foreign conditions for the l)enefit of its exporting members. Mention of the Pliiladeli)hia Com- mercial Museum should not be omitted. Other trade associations have more and more come to deal with for- PLANNING IN EXPORT TRADE J 07 eign trade toioics, and very frequently something of value may be secured from tJiem, They watch tariff regulation and attemi)t to adjust trade conditions. The National Foreign Trade Council represents a leading organization devoted exclusively to the fuitherance of foreign trade. Through its conventions and occasional researches and publications, it has stimulated much interest in foreign trade among the manufacturers of the United States. The American Manufacturers' Export Association should also be mentioned. The export journals and magazines furnish much of interest to the exporter, and some of them are printed in several languages for circulation in foreign markets and carry a large volume of advertising of American concerns seeking foreign customers. Distinction must be made between (a) the export journals intended pri- marily for circulation among exporters within the United States, such as The World's Markets, Export Trade and Exporters' Review, The Americas, and the Weekly Btdletin published by the Philadelphia CJommercial Mu- seum; (b) journals intended cliieny for distribution among business men abroad, such as the American Ex- porter, Export American Industries, Dun's International Revieiv and Commercial America. Some of these are published in several different Janguages. There are others, such as Asia, Pan-Pacific, Pan-American Magazine, etc., which contain informa- tion of a more general nature interesting to exporters, but are not published specifically and solely for exj^ort traders. The daily press will not be overlooked by the mde-awake business man. Much of its information is that origi iially published by the government ; on general exchange and political conditions, however, which have a very distinct bearing on market conditions, the most up-to-date information can be secured from the press. Lastl}^, the exporter should not neglect the opportu- nity for a comprehensive view of foreign trade organiza- tion and methods, as well as the pictures of general 108 PROBLEMS IN EXPORT SALES MANAGEMENT conditions in foreign countries, furnished by the books pubhshed upon foreign trade topics. Discrimination is necessary if waste of time is to be avoided. Most of the works touch only the high spots ; very few are more than superficial nor can they be otherwise in attempting to cover so broad a tield in limited space. The foreign trade bibliography by Herbert Stanley Shuey and pub- lications of the Department of Commerce, the various books on foreign trade, the periodical The World' t^ Markets, all contain lists of books upon various foreign trade topics, organization, methods, and markets. Names and titles are given in the various bibliographical ref- erences and in the bibliography at the end of this volume. The most complete information will assist but will not take the place of good judgment. The formulation of far-sighted policies with reference to organization and planniiig for more than the immediate future are neces- sary for the firm which expects to increase its foreign trade in satisfactory measure from year to year. The facts and information derived from research are used for both planning and operation. In planning for export trade, distinction may be made between the larger plans for developing a business over a period of years and the detailed plans necessary to carry out portions of the major or master plan. The master plan for the develop- ment of export trade would include decisions as to when particular foreign markets were to be opened up, at what times branches in established markets would be devel- oped, and the general plan as to development of methods of distribution. The detailed plans would include a study of the detail necessary to determine the best methods of carrying out the general plan of entering a particular market, the planning of an advei-fisiiig campaign for a particulai" market, the districting of sales territories, the routing of salesmen, equipment of salesmen, and the like — all of these are necessary under certain conditions to carry out the major plan of entering a particular terri- tory. It is evident from what has been said that the major plans will ordinarily require the sanction of gen- PLANNING IN EXPORT TRADE 109 eral and administrative authorities, because the charac- ter of the master plan depends largely upon the attitude of the board of directors and administrative officials toward the long-run development of foreign sales. The scope of research and planning in foreign sales, the methods which may be used, and the sources of infor- mation are indicated in the following outline: A. Research Methods. Sources of Information. 1. Advisability of research for export sales. Is sales research possible for the small enterprise? How can the small enterprise get facts upon wliieh to base its export policies aiul opei'ations? To what extent is it advisable to make appropriations for sales research ? To what extent shall statistical or research departments handle foreign research? Shall a research department be established ? What are the sources of information for all industries ; for particular industries? 2. Personal observation. Under what conditions is personal observation necessary or particularly advisable ? When is it uiuiecessary ? What are the requisite characteristics of the investigator in the export field I How can the results of personal research be tested for accuracy? Are they of sufficient value to justify main- tenance of a research department with field investi- gators ? 3. Correspondence and questionnaire. What type of information can be secured through corre- spondence and questionnaire methods? When should the questionnaire be used ? What are its advantages and disadvantages? no PROBLEMS IN EXPORT SALES MANAGEMENT 4. Printed sources. Which of the various printed sources are the most reli- able? To what extent can they be relied upon? In what particulars are they faulty or insufficient? To what extent must printed sources of information be supplemented by other facts in the particular line of business ? B. Market Analysis. 1. Market analysis — products. How can the manufacturer test his products as to qual- ity and durability ? How can the manufacturer learn all the uses of a particular product so as to increase the field of demand ? IIow is the manufacturer to learn the reaction of foreign dealers and consumers toward quality, durability, and style of the product so as to increase demand? How are the selling- points which will be most effective in foreign markets to be determined ? Which are to be selected for empliasis? What information is needed to ^letermine the policy as to selection of styles or models for foreign markets and where is this information to be secured? How can research and analysis assist in determining the effects of standardization of products and styles upon export sales? Wliat information is needed to determine methods of offsetting seasonal variations of demand in foreign markets ? How are containers and methods of packing for foreign inai'kcts to Ix' planned? 2. Market analysis — demand. Is it possible to estimate the actual and ]iotential demand for the product as to volume of denumd, location of buyers, and elasticity of demand? Fs the demand stable or is it affected by financial, sea- sonal, or other factors? PLANNING IN EXPORT TRADE 111 What are the extent and nature of competition? What are the requirements for the satisfaction of de- mand with respect to delivery? With respect to credits ? 3. Market analysis — reaching the market. How are present distribution practices for particular products to be determined ? What data are required for determination of policy as to sale through middlemen ? How are data concerning pro- spective consumers to be secured? How is the manufacturer to obtain detailed information as to retailers, jobbers, and other sales agencies which are to handle his product ? C. Research and Planning in the Management op the Sales Force. 1. Districting of sales territories. How should export sales districts be laid out? What should determine the number of sales districts? What considerations atf ect the division of sales territories ? 2. Assignment of quotas for sales districts and salesmen. Is it possible to apply quota plans to export salesmen? Should quotas for sales be assigned to export salesmen or to export sale districts for the business as a whole ? If so, what should be the basis of assignment of quotas to dis- tricts? How sliould quotas be made up for export sales- men ? 3. Routing of salesmen. With a given number of salesmen and a given number of customers, how ai-e salesmen to be routed? To what extent should salesmen be allowed leeway in the routes pi-escribed by the home office? Why is this more necessary than in domestic trade? 112 PROBLEMS IN EXPORT SALES MANAGEMENT 4. Planning of equipment for salesmen. What equipment is necessary for export salesmen ? How should it be planned? D. Research and Peanninc in Advertising. 1. Planning- of advertising campaign. How can advertising campaigns be so planned as to bring best results? To what extent is this planning the func- tion of the export department, the domestic advertising department; to what extent that of the advertising agency in cases where the preparation of copy and man- agement of space are not handled by the concern itself? Why is the choice of media of particular importance in foreign trade ? What research does it involve ? What research is necessary to determine details of copy, appeal, illustration, etc., for the various foreign markets? What are the methods to be guarded against? 2. Planning dealer hel})s. To what extent can cooperative advertising between dealers and agents and the manufacturer be employed? What planning is necessary to get the best results from dealer helps? What research is desirable to determine the washes of the foreign dealer in regard to assistance from the home office? To w^hat extent does studj- of the customs and desires of the foreign final consumer influence dealer work to be undertaken ? How can the results of research be applied to the prep- aration of catalogues and other product literature? E. Planning and Scheduling Orders and Deliveries to Secure- Coordination OF Sales and Production. PLANNING IN EXPORT TRADE 113 F. Planning the Complete Sales Campaign. What are the elements of a complete sales campaign? How should a sales campaign for a given product be planned ? How are periodical advertising, dealer helps, and per- sonal salesmanship to be correlated and coordinated in a sales campaign 1 To what extent does direct-mail ad- vertising play a more important part in the foreign than in the domestic sales campaign ? What research is necessary to provide a basis for an intensive selling campaign ? Problem 25 Brackett Fire Apparatus Company — Field Trips* The Brackett Fire Apparatus Company of New York manufactures and distributes one of the leading fire extinguishers in the American market. In 1921 the com- pany had foreign agents in the following South American countries: Argentina, Brazil, Chile, and Venezuela. On August 15, 1921, the export manager of the Brackett *Upon the organization and methods of commercial research in general, consult Duncan, Commercial Research; Frederick, Business Research and Statistics; White, Marlcet Analysis; also the statistical manuals such as Secrist, Readings and Problems in Statistical Methods; King, Elements of Statistical Method. Percival White treats foreign market analysis in Chapter XVIII of his Market Analysis. Eeference may be made also to the following articles dealing with research methods, as well as to Hough, Practical Exporting, pages 13-36: Printers' Int. June 5, 1919, p. 159 — ' ' Investigate First, Then Act, in Going after China's Trade." The World's Market. Oct. 1920, p. 29— "Uniform Statistics Needed." National Foreign Trade Council, proceedings. 1920, p. 541, Prof. G. B. Roorbach— "A New Commodity Class- ification for Trade Statistics. ' ' 1920, p. 532, A. L. Rose— "The Service of Business Libraries." 1918, p. 422, Ernest F. Du Brul— "Direct Contact of the Seller and the Buyer for Gathering Information. ' ' 114 PROBLEMS IN EXPORT SALES MANAGEMENT C^omi)aiiy went the following letter to the foreign service department of a large New York ])ank: "We arc seriously coiisideriug' sending one of our men to South America to appoint agents in countries where we have none at present and to visit the agents in countries where we alread}^ have connections. This trip will involve a considerable amount of money, which might be used to better advantage in another way. In view of the cause of business depression in most of the South American countries, in view of the rate of ex- change, and other conditions influencing business relations with the United States, we are wondering whether we would be doing the right thing by having our representatives go now or wait awhile, until conditions have become better. We are looking at this matter not so much from the standpoint of securing results in the vague future as that of assisting our present business. It is of course apparent that a trip of this sort will always be beneficial to us and it will help to promote relations between our Latin American friends and this company. Would we secure immediate results, however, under existing conditions in those countries ? "We should appreciate your frank opinion on this subject." What advice should have been given at this time to the Br-ackett Company"? Problem 26 Gary Typewriter Company — Study of the Market As peace among the new nations of central Knrope becomes more and more of an actuality and commerce and industry come to the fore, the Gary Typewriter Company is planning to enter these markets. Altliougli this firm is comparatively new in the typewriter field, it has turned toward foreign distribution almost from the start. It has. already established agencies in Kjugland, France, Italy, the Scandinavian countries, Australia, New Zealand, and China, and is selling to a limited extent in Latin America. The Gary Company is now desirous of entrenching itself in those portions of the new coun- tries of Europe which are the most profitable and to that PLANNING IN EXPORT TRADE 115 end is planning to make a thorough study of the market for typewriters in Poland, Czecho-Slovakia, Jugo-Slavia, and Roumania. Ordinarily the Gary Company secures government reports as to the prosperity and industrial conditions of a country which it intends to enter. An official of the company is then sent abroad to secure first-hand infor- mation, since in any event it would be necessary to send such a representative in order to select and^ appoint agents. In order to secure as much information as pos- sible as. to the relative desirabihty of the different sec- tions of this foreign market, this man tirst confers mth United States consuls. He then visits the trade and attempts to learn what competitors are doing, how long they have been in the field, and to what extent they have secured distribution of their product. _ The next step is to make a study of the country and pick out the big business centers where a demand for Gary typewriters might be expected to develop. In each of these centers the company's representative visits the individual dealers who handle typewriters and learns which ones are tied up with competitors ' lines. He also attempts to form an acquaintance with the officials of the different banks, who frequently are able to recommend dealers who would serve as rehable agents. These bank- ers also are often sufficiently well informed on business conditions to assist the company's representative in forming an opinion of the industrial and economical con- ditions of that part of the country. From his past knowledge and understanding of the other markets, the representative is usually able to report on the centers in which it is desirable for the Gary Typewriter Company to concentrate its efforts. A study of this kind has not always been adequate however, for the company has found that it is not suffi- cient to pick out large industrial centers but that it is necessary to know what classes of industries are being carried on. A mining town, for example, might have a population of 50,000, but its abiUty to absorb typewriters would not be comparable with a trading center of half 116 PROBLEMS IN EXPORT SALES MANAGEMENT the size. Even a large business center may not be a good market for typewriters unless the people are educated to their use. Out of 7,000 lawyers in France it is stated that 4,000 do not use typewriters. A study of industrial conditions is also necessary, for an impending coal strike or change in business activities may reduce a dealer's possible sales by more than half. What changes should be made in the method used by the Gary Company in studying the foreign market? Outline the steps that should be used in studying the markets in Poland, Czecho-Slovakia, Jugo-Slavia, and Roumania. Problem 27 Rand Safety Razor Company — Market Analysis in Selection of Agents When in 1917 Mr. J. E, Connell was appointed export manager of the Rand Safety Razor Company of New York, the company's blades and razors were being sold in a number of foreign markets through several New York export commission houses. Having developed the domestic market intensively, the officials of the company had decided to devote more attention to the foreign mar- ket and the appointment of Mr. Connell was the first step in this direction. After a short preliminary study, Mr. Connell agreed with his superiors that sales would be stimulated in many foreign markets by the selection and appointment of good foreign agents, who would be given exclusive territory wherever it seemed that they could furnish adeqnat'» representation. The selection of export agents is not an easy task, even when the export manager is in a ])()sition to visit ])r()spects personally; it becomes more diflicult when decision must be made from material available in this country. As an aid in organ- izing the informatiou avai]al)le at home and information to be gathered abroad, both for the purpose of making initial selection and keeping in touch with agents, Mr. PLANNING IN EXPORT TRADE 117 Comiell drew up two forms, the first dealing wiih gen- eral conditions in a particular market and the second dealing with the agent selected to represent the Rand Company in this market. The foTms follow: MARKET ANALYSIS OF A FOREIGN COUNTRY riTV PROVTKPK A. _COUNTR .'. General governing Information COUNTRY. Sources : 1. Population: 1860_ LS70 1880 1890_ 1900 1910 1918_ 2. Number of Towns of 3000 inhabitants and over: 3. Per cent of population livinji' in towns of 3000 and over: 4. Languages Spoken : Per cent En<>'lish Speaking : Per cent French Speaking : Per cent German Speaking: 5. Chief Immigrant Races : Race Number Economic Activities 6. Economic Dependency: Per cent of Population dependent on — (a) Manufacturing (b) Agriculture (c) Fishing (d) Mining (e) Commei'ce and trade 118 PROBLEMS IN EXPORT SALES MANAGEMENT 7. Standards of Living — General Conditions What luxuries are found? What per cent of population enjoy them? Is the population free-spending or frugal? 8. General Attitude Towards American Goods 9. Dealers' Attitude Towards American Goods 10. Effect on Population of Various Kinds of Advertising 11. Natural Resources 12. Industrial Development To what extent has capital been invested, and does it promise to be invested ? In what lines? By native or foreign capital ? 13. Future Development and Purchase Power 14. Imports from Exports to 1!)00 1910 1918 1900 1910 1911 United States England Germany. 1.'). What Has Been the Benefit of the War? 16. Number of Foreign Travelers Annually? B. Demand for Rand Safety Razors 1. Shaving Age — Number of Males of Shaving Age 2. Number of New Shavers Annually 3. Shaving Habits: (a) Frequency of Shaving (b) Type of razors generally used (c) Cost of razors generally used PLAXMXG IX EXPORT TRADE ]19 (d) Lathei- matei-ial on market (e) Niimbei- of barbers per 1000 .Males of ►Shaviiij.- Age Number of shops per 1000 Males of Shaving Age Class of Shops 4. Wage Range of (a) Unskilled Labor (b) Skilled Labor (c) Clerks (d) Salaried Workers .3. Number of Males of Shaving Age receiving economic eouiv- alent of $1200 U. S. Money . 6. Number of M. S. A. receiving equivalent of $2000 7. What is the purcluising power of $5,000 .' 8. Estimated number of potential customers 9. Physical or other recurrent conditions affecting purchasin"- power ° 10. Annual per capita pui-ciiase of sugar cott'ee shoes 11. Prize card and premium i)ossibilities Is there a governnu'iit lottery.' Local lotteries .' C. Distribution 1. According to A-14, imports of greatest values come from Reasons, credits, personal contracts, service 2. Suggestions looking to importation of maximum number of Kand s 3. Media of Distribution: Kind and number of each — Wholesaler Jobber Importer- Retailer— 120 PROBLEMS IN EXPORT SALES MANAGEMENT 4. Which is the best means of distribution for Rand, and why? United States exporter, local importer, resident agent, commission merchant, salesmen, or direct 5. Reliable houses with which to do business 6. Tariffs 7. Transportation : (a) Ocean shipping lines (b) International transportation facilities. 8. Credits 9. Method of financing in general D. Competition 1. Sources of present razor supply 2. Kinds, styles, cost, selling price 3. Extent of 4. Amount of aggressiveness shown by other companies 5. Competitors' methods of distribution (i. Competitors' Advertising: (a) Extent (b) Methods (c) Media (d) Placed by whom PART II A. Source 1. Name 2. Full Address PLANNING IN EXPORT TRADE 121 3. Nature of business : (a) Wholesale (b) Jobber (c) Retail 4. Number of years in business 5. Affiliations 6. Merchandise Carried — Place of Purchase 7. Number of salesmen — Gross business, 1918 8. Foreign concerns dealt with 9. References B. Razors 1. Do you carry Rand Razor Blades? If so, give number sold in 1917 1918 If not, why? 2. Other brands handled — In what quantity? 3. Where purchased 4. Cost 5. Most popular style and sets 6. Price at which Rand is sold 7. Style suggestions 8. Should the Rand Company have supply on hand? (a) Locally? (b) Why?' (e) Where? 9. Suggestions on packing 10. Suggestions on shipping 122 PROBLEMS IN EXPORT SALES MANAGEMENT C. Expense, Terms. Credit 1. What are your razor purchases a year? 2. What is average cost of doiug busiuess? What is cost of doiug Kaiid business.' o. What are the methods of providing- for (a) Insurance (b) Freight (c) Duty (d) Storage A. Do jol)l)ers cluirge retailers carrying expenses on all goods'.' 5. What terms are allowed the jobber! 6. What is standing of (a) Jobber (b) Foreign Exporter (c) Local Importer (d) Commission Men 7. Would Jobber prefer to l)uy dii-ect? 8. Wouhl retailer prefer to buy direct? 9. Are Rand discounts satisfactory? Suggested changes 10. What should be the avei-au'c monthly purchase? 11. How often do you want to buy ? 12. Credit terms : (a) Cash against documents in I'nited States (b) Cash with order (c) Sight draft (d) Bank letter of ci-edit (e) Open account Which of above bases is most general method? Which is most desirable to purchaser? On which have Rand 's been purchased ? PLANNING IN EXPORT TRADE 123 D. Advertising 1. Do you use window displays! 2. Illustrations? 3. C'atalogs ? What languao-e ? 4. Opinion regarding outdoor advertising ."). Reading magazines— What si)ace best"? 0. Leading newspapers — What space best? 7. What American manufaetui'ers advertise? 8. How placed? 9. Remarks E. Miscellaneous 1. How can old ways of doing business be improved? 2. General summarv Remarks 111 the case of Aro'entiiia and other South American countries it is Mr, Coniieli's ph^ii to supplement infor- mation available from various sources in this country by a personal trip. However, before he was able to visit the countries personally, a request came from a Buenos Aires wholesaler asking for exclusive representation for Argentina, proposing a ten-year contract, guaranteeing a substantial volume of sales through its period, and including a very strong recommendation from the man- ager of a branch of a very important American bank. The proposal required a prompt answer. The problem before the export manager is how to get sufficient infor- mation to make some decision. AVhat information would be useful in addition to that upon the points included in the outline"? 124 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 28 BuRBANK Adding Machine Company — Desk Research Versus Field Research The Burbaiik Adding Machine Company is planning to enter the Australian market. This step is in line with the program of the company for expanding its foreign sales. By means of intensive sales efforts and national advertising campaigns the firm already has built up a substantial volume of business in Canada, and some effort has been expended in developing sales in Latin America, particularly in Mexico and Cuba. Inasmuch as Australia approximates more closely than any other country conditions prevalent in the domestic market, it appears to be the logical choice as the next field to be entered. Before a final decision is reached, however, the company wishes to have a comprehensive report* regard- ing the market for their product in Australia, but they wish to secure these data, if possible, without going to the expense of sending a field investigator. *Whatever the trade rejjiou or specific market, there are many points upon whicli the exporter wishes to be continuously informed. The following outline, submitted by Mr. Burwell Cutler, former chief of the Bureau of Foreign and Domestic Commerf-e, suggests a number of tliem : (a) Population figures. (1) Eacial predominance. (2) Percentages of other metal stocks. (3) General literacy or state of public education. (A very vital point in advertising, display methods, personal approach, etc.) (4) Predominant employment, whether industrial, agricultural, or mercantile. (.5) Percentages of other vocations and professions. (b) Purchasing power per capita. (c) Character of banks, whether liberal or conservative. (d) Merchandising customs. (1) Character of stores, wlietlicr dcpartineiit stores or shops or other sales methods. (2) Payment habits, whether by cash or credit predominantly. (3) Local delivery requirements. (_4) Use of sales floors or warehouses. (That is, do the merchants put the greater part of their stocks in one place or the other; some display only a few samples and deliver from warehouse.) (5) The use of advertising mediums and outside solicitation. PLANNING IN EXPORT TRADE 125 The export manager knows that he can secure general information upon customs and habits of the people from a variety of sources including year-books, books of travel and descriptions of the various countries, not to mention the reports of Government officials published both as Consular Reports and currently as Commerce Reports. More detailed information as to population may be secured from Census Reports, which give population by districts and classes and sometimes give the character and value of products in native industries, their location, etc.** Convenient compilations such as the Statesmen's Yearbook and the Gazetteer of Foreign Markets contain some of this information in summarized form. Upon banking conditions, as upon tlie other factors determin- ing the market at a particular time local banks through their correspondents may secure some information, while the Department of Commerce also makes it a point to be informed upon all such matters. Lists of dealers and lists of manufacturers of various types may be made up on the basis of such foreign directories as Kelly's Direc- (e) Banking facilities. (1) Are the banks primarily absorbed in financing crops or factories ? (2) Are they generally conservative or liberal^ (This has a bearing on the individual purchasing ability if ready money awaits the marketing of crops or can be borrowed in antic- ipation of them.) (3) The proportion of banks or other financial agencies that accept mortgages on real estate. (Liberality in this respect creates more fluid conditions of purchasing power among the public and stabilizes local conditions.) (f) Transportation facilities. (1) What water, rail, and trolley lines exist and carry package freight? (On this question hinges much of the marketing problem in the smaller commodities, since they are readily distributed over a wide radius from warehouse centers.) **Copies of these reports are on file in the larger libraries of the country which cater to business needs, and in the Bureau of Foreign and Domestic Commerce in Washington, D. C. Monthly reports of European countries on exports and imports for any one month can be secured from a month and a half to two montlis later. Yearly reports of South American countries vary considerably, Argentina, Brazil, and Chile, being from four to six months late; Venezuela ten montlis late; Peru, Bolivia, and Columbia, a year late. Yearly reports from Japan are two and a half montlis late; South Africa four months late, and China one year late. 126 PROBLEMS IN EXPORT SALES MANAGEMENT tory of Alercbaiits, IMannfacturers and Shippers of the World, the French directory Didot-Bottin, or the Ger- man directory Beichs Addressbuch. In addition to such general directories, classified directories containing lists of principal business houses along certain lines may be secured, among which may be mentioned the Interna- tional Bank Directory containing lists of banks all over the world, lists which would contain a large number of prospects for adding machines. Tariff information may be secured from the Department of Commerce and its publications, likewise from the comprehensive guide called "Kelly's Customs Tariffs of the World." The Commercial Laws Division of the Department of Com- merce might be invoked to give the legal requirements concerning trade-marks, collections, days of grace allowed on financial transactions, etc. The export man- ager likewise knows that there are half a dozen different sources from which credit reports may be secured, which are extremely valuable in checking up other lists of dealers, agents, or prospects. The Philadelphia Com- mercial Museum, the National Association of Manufac- turers, the Foreign Credit Interchange Bureau, R. G. Dun & Co., concerns which furnish credit insurance and the banks may be mentioned as sources of prime importance. Shipping information and special require- ments of various sorts can be found conveniently^ in the p]xporters' Encyclopedia. From these sources and from maps and other detailed reports it seems possible to determine the approximate immber of prospective cus- tomers, to make out a salesman's itinerary, and to interest these prospective customers by a preliminary mail campaign; nevertheless it is also evident that most of these data are from six months to a year or more out of date. Inasmuch as representatives will eventually be sent to inti-v)(hice the product and to appoint agents, a counterplan has been proposed — that the company should at once send such a representative abroad to study con- ditions and to report on the pr()bal)le sales in this field. Later when agents have been appointed to represent the company, an advertising and circularization campaign PLANNING IN EXPORT TRADE 127 could be carried on which would effectively tie up Bur- bank Adding Machines with the name of the local agent. Since the company has found in the domestic market that effective selling demands that the sales manager know his territory from actual experience, it would seem rea- sonable that the same policy would be successful in the Australian field. Problem 29 The Self-Operating Scale Company — Market Analysis of Australia and Argentina Because of the supply of comparatively cheap labor in most foreign countries and the unfamiliarity of foreign consumers with package goods, the Self-Operating Scale Company sold few of its automatic packing machines abroad prior to 1914. With the war, however, came a radical change in the labor situation in England and on the Continent; several million men were called to the colors; women were compelled to fill their places; and wage scales rose rapidly. Tlie introduction of package goods from America served to increase their use and help to break down the prejudices of many consumers. With the depression in the domestic market in 1920, the company became convinced of the necessity for develop- ing new markets for its machines abroad. Agents were accordingly appointed in France and England; and by June, 1922, the British business of the company had increased so ra])idly that a branch was established in London. The firm is now planning to extend its sales efforts to Argentina and Australia, but before it is defi- nitely committed to this step it is desirous of securing information on the following points : Is there sufficient need for automatic packing machin- ery in Australia and Argentina to warrant the develop- ment of these markets by the company? If so, should the company establish branches, appoint agents, or develop the territory by advertising"? If advertising is 128 PROBLEMS IN EXPORT SALES MANAGEMENT to be used, should it be directed to manufacturers, or should it be directed to consumers in order to educate them to the advantages of package goods'? How can the names of possible buyers of the product be obtained? The Self-Operating Scale Company manufactures a line of automatic machines used for filling two to five- pound cartons with such products as sugar, rice, coffee, soajJ powder and flakes, and for tilling flour bags up to fifty pounds capacity. Although it is rapid and accurate in operation, the apparatus is not adapted for such prod- ucts as crackers, cookies, or candy. The company also manufactures a device which automatically lines the inside of cartons with a thin coating of paraffin. Since most of these machines are large and of intricate mech- anism, a high degree of technical skill is necessary in order to install or repair them or explain their operation. But few parts of the machines are standardized, as the cartons used by different manufacturers vary in size and shape. The company is convinced that many manufac- turers can box their products cheaper at their factories than the retailers can sack the product in their stores, but inasmuch as the machines cost from ten to fifteen thousand dollars each, their use is limited to large manu- facturers. At present, because these machines are a comparatively new development, the company has but few competitors in either the United States or England. When an agent was appointed in England in 1919, the company circularized a list of prospective customers which it obtained from the Philadelphia Commercial Museum; it also advertised in one of the large English engineering journals. At the same time an agent who Avas appointed in Paris to cover eastern Europe, also handled a non-competing line of automatic chocolate machinery. Here again the company circularized pro- spective customers and advertised in the Journal Seville which had a circulation among engineers. In June, 1922, •a sales branch and warehouse for repair parts were estab- lished in London. Three reasons prompted this move: The country was densely populated; there were more PLANNING IN EXPORT TRADE 129 large mamifacturers in England who could profitably use these machiues than in any »'ther country except the United States; and the use ol' package goods, although not far advanced, was ])rogress!ng. In the same month the conii)any liad a moving picture film produced showing its machines in operation in sev- eral large manufacturing plants in the United States. This film was displayed in England with the following results: It demonstrated to prospective customers how the machines operated; it gave prestige to the company through showing its machines in operation in the largest plants in the United States; and it demonstrated to the English consumer the advantages of using package goods. These films were also shown on the Continent where, because of the conservative attitude of consumers and few factories adapted to the production of package goods, the company has not deemed it advisable to open a branch; it has, however, retained its agent in Paris, and has attempted to develop sales mainly through advertising. In the development of Australia and Argentina, the company is at a loss as to what steps to pursue. Both these countries are newly developed, and are reported to be advancing along the same lines as the United States. A rapid development of railroad, telephone, and tele- graph systems has taken place. In reaching a decision on the Australian and Argentine markets, the company is handicapped by a lack of information, its actual knowl- edge of these fields being limited to the following facts: The population of Australia increased from 4,918,632 in 1916 to 5,412,31 S in 1920. According to the last report, 4,371,511 are located in the three states of New South Wales, Victoria, and ^^)ueensland. The number of fac- tories increased from 14,455 in 1911, with 311,710 employees, to 16,291 in 1920, with 376,734 employees. Of the 16,291 factories, 201 were flour mills, employing 3,733 workers and producing 1,050,228 tons of flour, and 35 were sugar mills and refineries employing 4,517 work- 130 PROBLEMS IN EXPORT SALES MANAGEMENT ers and producing 238,428 tons of refined sugar. Because of its coal su|)i)ly, the country is in position to develop ]*apidly industrially, but although machinery, agricul- tural implements, glassware, and other products are manufactured, sugar and flour are the only important products for which the machines of the Self-Operating Scale Company may be used economically. The population of Argentina increased from 6,881,311 in 1913 to over 8,000,000 in 1920. Over half the people are located within 200 miles of Buenos Aires. In 1913 there were 48,779 factories, of which 408 were flour mills having a maximum annual capacity of 2,143,910 tons and employing 4,939 persons, and 43 were sugar mills and refineries employing 42,163 workers and producing 150,402 tons of refined sugar. Argentina is primarily an agricultural countiy, producing for the most part dairy products, hides, wool, and meat. As in the case of Australia, the two chief industries capable of using the machinery produced by the Self-Operating Scale Com- pany are sugar and fiour. The lack of coal and water power has tended to prevent the development of large scale production although it is reported l)y travelers in Argentina that rapid strides in industrial development have been made since the war. On the whole, however, the exports of Argentina consist largely of raw materials. Problem 30 The James & King Company — Analysis of South American Market for Photographic Material The James & King Company manufactures a line of small cameras for amateur photography, ranging from the smallest or pocket size to more pretentious equip- ment nniking pictures 5x7 inches in size. In addition to cameras and fittings, the comi)any also sells a line of supplies for amateur photography consisting of sensi- tized films and plates, chemicals and chemical compounds, and apparatus for developing negatives and finishing pictures. PLANNING IN EXPORT TRADE 131 The company has maintained one salesman, who has traveled the east coast of South America with a degree of success which though moderate was sufficient to lead the company to believe that more intensive cultivation of the Soutli American market might result in perma- nent and proiitable business. With this idea in mind the assistant sales manager, w^ho has been in charge of export transactions, was asked to gather data and pre- sent a report on the proposition to establish one or more branches in South American cities. After collecting information from various sources, the recommendation was made that a branch should be established first at Rio de Janeiro, next at Buenos Aires, and the third in Chile, preferably at Valparaiso. The basis for this recommen- dation was his conclusion that South America offered a market for photographic materials in the order men- tioned. His method of approach to the problem is indi- cated in excerpts from his report, as follows : The countries covered in this study are those of continental South America : Argentina, Brazil, Chile, Colombia, Ecuador, Uruguay, Peru, Venezuela, Bolivia, Paraguay, and the Guianas — British, Dutch, and French. The analysis of each country and the comparison of their purchasing power are based upon statistics whose value is uncertain. Population, the most important factor in determining the market for photographic materials, can be only approximately ascertained in many cases. Few recent censuses by actual count have been taken, and estimates for the various countries vary widely. For instance, a recent unofficial estimate of the Brazilian Census Bureau gives the population of that country as 30,553,509 for 1921. Mark Jefferson, in a scientific forecast of population growth, judged that the 1920 figure for Brazil w^ould be 20,100,000.* Other estimates fall between these extremes, and similar divergent cstimalcs arc found I'oi- most of the other countries. Other iiilci'iial slalislics arc likewise of somewhat uncertain accuracy, or arc lacking altogethci-. The attempt has been made, thei'efore, to use the information found in various United States Government I'eports as far as ])ossible. These reports may be considered to be accurate and liave the advan- tage of being unprejudiced. Where possible, the same source of information has been followed throughout. *Bulletiu .Amer, Geog. Society, Vol. 46, No, 6, 1914. 132 PROBLEMS IN EXPORT SALES MANAGEMENT Figures of the foreign trade of the countries studied are also found to differ somewhat in various reports. Thus in Argen- tina, impoi'ts and exports were formerly valued on an artificial "tariff" scheduk\ which remained constant from 1906 to 1917. In the latter year real market values were substituted, and the previous figures corrected back to 1910.* Some reports give one set of values and others give the other. Consequently large apparent discrepancies are found in different works. The uniform source selected for these figures is the Supplements to Commerce Reports, published by the United States Govern- ment, and the subsequent reports correcting these Supplements when, as in the case of Ai-gentina, previous values have been invalidated. The comparison of the purchasing powers of the various countries is based primarily upon the foreign trade which those countries do with the world at large, and with the United States. The amount which any nation can sell abroad, and the net amount which it can im])ort as a result of that exportation, are the real gauge of its ])urcliasiug power. The exports measure the gross buying power. From those exports the nation pays others for capital borrowed from them, and services performed by them for it. Over a period of time, then, the volume of external trade of a country becoincs tlic measure of its ability to buy abroad. The actual analysis of the market for photographic materials in the various countries is necessarily a broad one. It has not been found possible adequately to determine the exact classifi- cations of the photographic supplies imported into the South American countries, from their own import figures. These figures, available in oidy a few countries, do not differentiate between the numerous groups into which photographic mate- rials naturally fall. Nor do the export statistics of the United States lend thems;'lves to any distinction between the two chief groups of goods, amateur and pi'ofessional. To make compai'isons. therefore, it is necessary to include all kinds of materials in the study, except exposed motion pic- ture film, which may readily be omitted in all cases and the sale of which is distinct from tlie sale of unnsed supplies. It has been attempted to t'stiniatc the ])ossil)le consumers of amateur supplies priiiiai'ily, on tlie assuni])tiou that this group includes also all cojisuiuers of oilier kinr;ickotoil imiiioiiils show jiositioii uiiilcr ciicli item) Imports Imports l^ S. riissil.lc l\' r Cap. Per Cap. Count rv riioto Su])pl ies C OIlSll MUM'S Tot; Ill Pop. Pos. Cons. Argen. a) $347,136 (2) 2,642,000 (1) $0,043 (2) $0.13 Braz. (2) 298,242 (1) 3,000,000 (•■^) 0.01 (5) 0.099 ChOe (3) 95,705 (3) 800,000 (3) 0.024 (6) 0.095 Peru (4) 53,452 ('^) 225,000 (4) 0.011 (1) 0.237 Urug. (5) 51,782 (4) 420,000 (2) 0.037 (3) 0.12 Colom. (6) 25,143 (6) 225,000 (7) 0.004 (4) 0.111 Venez. (7) 25,047 (8) 125,000 (8) 0.002 (8) 0.053 Ecdor. (8) 6,683 (9) 75,000 (6) 0.004 (7) 0.089 Boliv. (9) 2,359 (7) 145,000 (9) 0.0004 (9) 0.012 Total Consumption .1914 U. 1 3 $35,599,000 48,000,000 $0,356 $0.' 76 Are the data upon which conclusion is based sufficient to warrant the company's adoption of his recommenda- tions ! What criticism might be offered upon the method of approach? Problem 31 Middle Western Association of Garment Manufacturers — Analysis of the Demand in South American Markets for Women's Ready-made Garments Because of the seasonal nature of the clothing busi- ness, the members of the Middle Western Association of Garment Manufacturers have been able to operate their shops but from thirty-tAVo to thirty-five weeks during the year. The style element plays so important a part in the sale of women's medium priced suits, coats, skirts, and dresses, that retailers refuse to place their orders far in advance of their actual needs. During the rush periods the members of the association employ many extra workers; when the slack period sets in, however, many workers must find employment elsewhere, the effi- ciency of the organization is destroyed, and fixed charges rapidly reduce profits. Inasmuch as the seasons in Argentina and Chile are contrary to our own, and in the 140 PROBLEMS IN EXPORT SALES MANAGEMENT other Latin-American countries llicrc is a ])ossibility of a style la*;' as compared to the domestic maiket, the asso- ciation is making' a study of South America in order to determine whether or not it can allcxiate its seasonal diUficulties by selling its gan)K>iits in that field. In order to serve as an outlet for the garments pro- duced by the members of this association, a market must have the following qualifications: a. There must be a group of women who correspond to the middle class of women, in the United States. b. There must be a demand for cloaks, suits, dresses and skirts, or garments of a similar nature of the quality in demand by American women. c. This demand must be large enough to warrant the manufacturers entering the market and the returns must be large enough to cover the cost of production. d. It nmst be possible for the manufacturer to know the style demands sufficiently in advance of the seasons to permit the garments to be manufactured during the. slack production months of April, May, June, or October, November, and December. Argent'iHa According to the national census of 1914 there are 3,568,214 women in Argentina,^ about sixty per cent of whom live in the cities and towns within a radius of two hundred miles of Buenos Aires. This section of the country has a temperate climate, and is served by a good railroad system.- These women may be divided into three classes corresponding to the three classes in the United States,^ The wealthy gr-ou]) which is made up 'Pan-American Union. ''Special Agent Series, No. 1(59. *Juan Ovalle Quintero, economist for tlic Aiiu'iic:in Financial C^onference. (1) The following extract from a letter by an American in Argentina serves to throw some light upon the characteristics of Argentina as a clothing market. Cordoba, Province of Cordoba, September 1, 1921. I think we can safely count the number of women in Argentina .as two million (2,000,000). These women are of all nationalities of the PLANNING IN EXPORT TRADE 141 largely of old Spanish families, is estimated at not over five hundred thousand. The poor group is composed of two million Italians, Spaniards, Russians, Syrians, Greeks, and other immigrants from southern Europe. (1.) The middle group which consists of native Argentines and a few immigrants from northern and western Europe, is estimated at not over one million. earth. Three-fourths of tlic total population are native Argentines — that is, a mixture of Indian and Spanish blood with also a touch of Negro blood; one-eighth arc Italians; onp-sixtoentli arc Spaniards; — or perhaps I had best indicate the numbers by percentage. There are seventy-five per cent Argentines; eleven per cent Italians; five per cent Spaniards; three per cent French; one per cent English; one per cent German; four per cent of other nationalities. Tlic educational standard is very low, especially among the .Argentines — perhaps not over forty-five per cent of the children of school age are in school and at least that per cent of the Argentine women, especially, that can not read or write. Underskirts, corset covers, combinations, stockings, shoes. Few hats are used. The top clothing is made in the home or made to order by dressmakers in the stores where the material is selected. To be frank I do not see any way to increase importation of ready- made clothes unless it were possil)le to make them less expensive or some North American merchants to come liere and put up a manufacturing establishment and make tlie clotliing according to tlie latest style (for the people in general are great for style of tlie latest fad) and then put them up in the stores in the most attractive way. At present, on entering the stores, tliere aie no I'oady-made dresses in sight. As to the underclothing, there is, for a Inrge portion of this class is bought because of the cheapness, but the dresses, no. On all sides there are real pretty materials on display for suits and dresses, for that is what is sought. Why do they not purcliase moi-e readj'-made clothing now? 1. It is not because of custom ; it is because of economy. 2. It is because they cannot get it (ready-made clothing) as cheap. 3. It is not because the ready-made clothing available is excellent, because there is very little clothing made except by order of the person wishing the clothing, because it is difficult to sell it otherwise. 4. It is because the ready-made clothing available is too expensive and does not fit so well. 5. It is because the ready-made clothing is not put up in an attrac- tive manner ; no, the stores are not untidy ; no, I can truthfully say that the clothing is not put up to them as attractively as it is to the women of the United States. Perhaps it would be possible to educate them to buying ready-made suits and dresses, provided they were not too expensive. Medium. There is a very small percentage, I should say not more than one-tenth, of the women who recjuire garments of good and conserva- tive style and good wearing quality. The reason of tliis is that the women care so much for the style of the latest sort, fad or what not. Of course in this fact would lie an opportunity for merchants from other countries to begin a process of educating them so that they would care for better materials and more conservative styles. As it is now, there is a large percentage that seek the cheapest and an inferior quality. 142 PROBLEMS IN EXPORT SALES MANAGEMENT Very few of the coats, suits, dresses and skirts worn by the women of all three classes are made in wholesale manufactni'ing establishments. One of the largest estab- lishments in the country, which is operated by Harrod's Department Store, requires only two Iinndred workers and seventy machines.^ Although the woukmi follow Parisian fashions closely, wearing styles only six months after their appearance in Paris,- but few ready-made garments are imported, most of the women having their clothes made to order. During 1916 only $172,198 of ready-made garments were brought into the country, most of these coming directly from Paris for the use of the wealthy class.*'' An average import duty of forty per cent ad valorem, plus a seven per cent surtax, must ])e paid on these garments. Chile It is estimated that there are now about 1,875,000 women in Chile,* of whom forty-five per cent live in the central part of the country which has a temperate climate, and can be reached from Valparaiso by train. A large portion of these women are of pure Spanish stock, most of the mixed races being found in the south- ern and northern parts of the country. As in Argentina there are three classes of women. It is reported that there are 187,000 to 375,000 belonging to the wealthy I should say that the women of this country recognize only two seasons, summer and winter and of course these seasons are opposite to ours at home. However, there is quite a tendency on the part of the merchants to put on great sales at the close of the Avinter, for example, and the people seem to buy some for the following winter. Naturally this buying is on the part of the medium classes. Bear in mind tliat a large amount of clothing is not required and they buy only the actual necessities. Ready-made and medium quality garments are not as expensive in Argentina as in the United States. A suit of medium (juality materiiil costs only around $30. Of the best material between forty-five and fifty dollars. My opinion is tliat the greater part of tlie reaily-inade goods comes from England, some from France. From North Aincrica, not enough to mention. 'Miscellaneous Series No. 68. sPersonal inquiry and correspondence of investigator. ^Miscellaneous Series No. 6S. ^Special Agent Series, No. 164, PLANNING IN EXPORT TRADE 143 group ; about 900,000 to the middle group ; and from 500,000 to 750,000 to the poor group.^ There are no factories in Chile which produce outer garments upon a wholesale plan for the trade.- Some garments are made ''to order" in establishments oper- ated in connection with the largest stores, but for the most part they are made in the homes. (2.) As in Argentina, the women often wear Parisian styles six months after their creation in Paris. The following tigures sliow the impoi'tations for tliree years:-'* 19i;] 1914 1915 Cotton Garments 172,196 81,439 35,295 Silk Garments 222,297 150,712 63,169 AVool Garments :524,04S 208,493 62,026 It appears that one reason iniiK)rtation has been so low is because few medium j^riced garments have been offered for sale even in the capital of Santiago. The women are not prejudiced against the foreign product, and the tariff being specific (ten pesos per kilo) is not at all jjrohibitive. 'From opinions of members of the service department of a hank spe- cializing in Argentine trade. '■"Speeial Agent Series, No. 168. "8])ecia] Agent Series, Xo. 1 68. (2) The following extract from a letter hv an American missionary in (.^liile, describes the buying habits in Chile. Santiago, Chile. Sept. 2S, 1921. As to the percentage wImi Iniy their ciotJiing ready made I have arrived in my investigation at the conclusion that the serving class buy practically none, the middle class more, perhaps 50% of it, and the wealthy class practically all of it. The first class is composed of about 90% of the women, the middle and moderately well-to-do about 10%. There are no millionaires, 1 am told. The articles of ready-made clothing ])urchased are in general (of course shoes, hose and hats) suits, dresses and blouses, coats, sweaters and rain coats. Remember it is just the wealthy class that buy all of these articles ready made. I have friends among the middle class who make all of these things for themselves except shoes, hose and rain coats. This is true; and they say the •majority of their friends do this; and I know the serving class make their own clothes — those which aren't given to them by their mistresses from their discarded wardrobes. T am not sure about the women being educated up to buying their clothing ready made; because of several reasons. First, all the Avomen I know (I have no friends among the idle rich — I have neither the time nor the inclination for them even if I had the opportunity) are proud of their ability to sew; and secondly, they are taking every opportunity to learu. 144 PROBLEMS IN EXPORT SALES MANAGEMENT Brazil The market for ready-made garments in Brazil does not extend beyond a wide strip of territory running along the coast from Para to Rio Grande de Snl. Rail- road service is poor, except in the two states of Rio de The Singer Sewing Machine Agency here is carrying on an interesting propaganda ; as they go aV>out advertising their machines, they conduct free sewing classes and demonstrations of tlie use of the machine. They have large enrollments in these classes and even the servants often own tlieir own ' ' Singers. ' ' The girl in the house where I board has a Singer Sewing Machine, a thing I could not aspire to purchasing to bring witb me. However, because of the surprisingly lower price at which they are sold here, I am hoping to enter the class of owners and sewers; for I like to seAV as a diversion from mental tasks, and to economize with a missionary's pocket book. Thirdly, (referring back to the previous numeration of reasons) the women of Chile buy few ready-made clothes for economic reasons. The imported material is much less expensive even after paying a local dressmaker than the ready-made article, and the native made material is very much cheaper. The women have not gone in great numbers from the homes into the professions and industries ; they have one or more servants in even the moderately well-to-do middle class families; the women have time to do sewing and fancy work in their homes. Chile does not have a well deiined class of ' ' business girls ' ' as we have in the states. One sees a real tailored business suit so seldom on the street that he turns to look again at the pleasant spectacle. They have the fancy made suit or dress of "la ultimo mode" (the latest style or fad). Even the middle class girl must be in the latest style; hence she ])urchases a meter or two extra of the material of each suit or dress in order to be able to change her dress with the quickly changing fashions. Colors also change, hence the Chilean girl dyes or has dyed her old dress and with tlie made over model she has a dress of the very latest style both as to model and color. This infor- mation came directly from Chilean girls Avho do this. (Middle class again.) These girls are school teachers. As to ready-made clothing in the best stores, Gath and Chaves, Casa Francesa, Burgalot, Struthers and a few others, display their ready-made goods well; but all tlie other stores have crowded unattractive windows, where even a beautiful garment would not seem so in the surroundings. In most of the smaller shops the goods and the few ready-made garments there, blouses, sweaters or shawls are hung out in front of the store as if they had just completed the family wash and had hung the things in the door or even out on the street against the walls to dry. They say it is a Span- ish custom. In none of these stores have I found as intelligent, interested service from the salesmen as we have in the U. S. They do not know their line so well nor do they enter into the sale with the })ersonal interest and intelligent advice that we get from our best salesmen. The women who can afford it here buy their suits by seasons as in the States (of course our seasons come in the reverse order here) ; but one sales- man told me that many, many women buy suits at the end of the season because they are cheaper; then they save them until the next season or wear them right then. The climate is very even in all ])arts of Chile especially from the end of the Northern Desert region South as far as Pta. Arenas. In all of these sections tliere are not very cold winters nor very hot summers, but heavy clothing or medium weight may be worn all the year 'round. If one wears voiles, organdies or other thin materials, she must have a wrap after five o'clock in the afternoon or in the shade PLANNING IN EXPORT TRADE 145 Janeiro and Sao Paulo. ^ As in Argentina and Chili there are three classes of women. It has been estimated that in the territory under discussion there are 250,000 in the rich group, 1,000,000 in the middle group and 8,500,000 in the poor group.- The upper groups are composed largely of Portuguese, Spanish and immigrants from northern and western Europe. The large poor class is composed principally of mulattoes, Indians and mixed breeds."* No great proportion of women's ready-made outer gar- ments are made in wholesale manufacturing establish- ments within the country, (;:!) although in Kio de Janeiro 'Special Agent Series, No. 169. 2A eomposite of several estimates by Soutli American experts. ^4ugliinbaugli, "Sellino- Latin Anu'rica." practically all the time. For this reason tlie materials used are chiefly woolens, heavy linens or cotton, or mixed wool and cotton and silk. Very few organdies, voiles and similar materials are nsed in comparison with the (States. The most prevalent ready-made clothing is from France, from Paris. Some houses, chiefly English, import English ready-made goods but not in large quantities, and the wealthy class, a salesman told me, always ask for imported ready-made articles. He said that his house sells some blouses and dresses made in England; but the biggest liouses in Santiago import their stock almost entirely from Paris. One very important house is called ' ' Casa Francesa ' ' — ' ' The French House. ' ' If their ready-made things are not all imported from France they are locally made from French models. I am told by the salesmen from tlie other two largest houses selling ready-made goods that nothing Avhatever is imported in this line from the U. S. The Gath and Chaves man (largest house) says they get absolutely nothing from the states. The other English house said that they had imported hosiery from the U. S., but since the bad exchange, that even this liad been discontinued. I think we can safely conclude then, that no ready-made clothing, suits, dresses or blouses are imported by Chile from the States. There are some shoe stores that advertise American shoes and perhaps some stores still get silk hose or other acces- sories of a woman's toilet; but there is no ready-made American clothing for women here. (3) The following letter is from an American wlio has spent a number of years in Brazil. 55 Marquez de Abrantes, Eio de Janeiro, Brazil, October 17, 1921. Even as to poinilation my answer can not be entirely satisfactory. A census has been taken recently but the returns from the various states are not yet in. The old figures give a total of twenty-five million inhabitants, of which number more than a million are Indians. The last census shows Rio to have one million six hundred eighty-four thousand people but the 146 PROBLEMS IN EXPORT SALES MANAGEMENT and Sao Paulo several factories manufacture a cheap type of garment. As the climate ranges from 53 degrees to 90 degrees, coats and suits are in little demand.^ But few ready-made garments fire imported as shown by the following table covering both men 's and women 's gar- ments :- 1913 1914 1915 Cotton Garments $1 ,105,570 $428,650 $423,050 Linen Garments 84,970 31,370 32,060 Silk Garments 36,190 21,720 40,320 Wool Garments.... 75,940 34,960 16,700 Totals $1,302,620 516,700 512,130 The importations are made almost entirely by the very rich. Upon trimmed garments a duty of sixty per cent ad valorem is charged, but upon untrimmed garments a charge is made which is double the duty on the tissue division into sexes is not made. Of course somewhat more than half are women. The country has about three hundred thousand German women, about five hundred thousand Italian women, a goodly number of French women and only comparatively few Americans. English and other Europeans are also few in number. I visited all the best stores in this city and interviewed the heads of departments. None of them could give me any idea of the percentage of women who buy ready-made garments. All of them said that dresses displayed in their stores are made in the very same shops. One said that they seldom display dresses to attract the customer, that they seldom sell them, and never Avithout much alteration, to make the dress express the individuality of the customer. Another said that they sell many dresses made in the shop and many French dressess, but that a few years ago they tried carrying a line of American dresses which had to be made over before selling, as the styles were not pleasijig. In any store one may select ma- terial and order a dress made according to individual taste. M.any Brazilian women do this, many make them or have them made at home, and the extremely wealthy ones order direct from Paris. The men with whom I talked told me that the Brazilian woman cannot be induced to buy ready-made frocks. In each instance the reason given was fear of finding her dress duplicated and failure to exercise her own taste. In their opinions economic reasons had aniall place. It seems that Ameri- can styles are too plain to meet with approval here, and it is a well-grounded custom to have one 's clothes made according to one 's own ideas. One sales- man told me that men insist upon having their suits tailored even if it empties their pocket-books. Mr. Schurz, in spite of these opinions, believes that the Brazilian women can and will be educated up to the use of ready- made garments. His faith comes at least in part from the fact that five years ago a man's readj'-made shirt was seldom sold, and now men seldom do the old way of selecting the material and ordering the shirts made. 'Miscellaneous Series, No. 71. 'Miscellaneous Series, No. 71. PLANNING IN EXPORT TRADE 147 from which the product is made plus a ten per cent sur- tax Ihe middle class have some of their garments made stottt^rf '"■;;" <'°'"f'=««" ^"«> «^'^ l^^ge department . hom, T ,"'■ " "r'' Pf *''^' "'''^' ^^'^' g«™»t« clotlies^' ''"°'' '""' " ''''"''"'• '"^'''^ "" °^ *'>^"' "^"' In the two states of Bio de Janeiro and Sao Paulo the i-arisian fashions often appear at the same time that thev Tsite'^r™ ?/f'' '™" "'""S-^ "'^ ^«««°"« «re op- posite.^ Since the temperature does not vary greatly during the year, it makes little ditference whether winter or summer fashions are worn. Outside of these two states however, because of the scattered character of the popu lation and the poor transportation facilities, the st4s are often one or two seasons behind those wo,; in Paris Colowbia Colombia claims a populaticn of 2,632,050 women who -63,000 aie of Spamsh desecnt ; 100,000 are Indians and b ood. 1 0 mulattoes and mestizos live upon a low plane ; for the most part they dress in cheap calico, which enables them to make a dress for forty or fifty cents ^ It IS reported that practically all of the whites corre- spond to the middle class found in the United States'* 'Bureau of Foreign and Domestic Commerce. ^Miscellaneous Series Xo. 71. 'Miscellaneous Series, Xo. 7J. ^;A„glu„b„„g,„ ..So,M„i; L,„i„ A,.,.H •• s,«.ial A,e„t Seric, "Special Agent Series Xo. 20C. rej;St'S*Si:;S.'^P''" '^^"^ '''-'' '''' «P""-^ «f -- American long Barranquilla Station, Apartado 100, Ii8 PROBLEMS IN EXPORT SALES MANAGEMENT Because of the climate which ranges from hot in Barran- quilhi to a spring- coohiess in Bogota there is Uttle de- mand for suits or cloaks. No garments are made in wholesale establishments within the country, and im- portations are few. Most of the clothes are made in the homes or ])y dressmakers, very little effort having been expended to increase the use of the imported garment. The import tariff ranges from $1.60 to $2.50 per kilo. Although in Colombia there are only the wet and the dry seasons the garments worn are based upon the Parisian spring, summer and autumn styles, but because of in- adequate transportation service, the styles are often a season or two behind those of Paris. Problem 32 The Hight Company — Districting of Sales Territory The Hight (/ompany is the third largest manufacturer of tubes, pipes and valves in the United States. The prod- uct is used by many classes; consequently, the intensive cultivation of the domestic market has required very con- siderable study not only in finding buyers but also in determining the types of users of the product. The first class of users is found in modern buildings, where tubes, pipes and valves are required for plumbing equipment, water supply, steam or hot water heating, and gas and class ; both as to suits, dresses and underwear. Women of the small priv- ileged class do buy the expensive suits and dresses; as to lingerie, a small French shop with very beautiful lingerie sold out in Barrnnquilla a few months ago; the woman in charge told a friend of mine that her ])atrons had been largely from foreign women resident in the city, that tlie wealthy Colombian women were not willing to pay the price. This question brings up an important point. There are no seasons in Colombia that correspond to our own. In Bogota, at an altitude of 9,000 feet, per])etual Spring reigns, and the altitude makes necessary warm Avraps. Men wear light overcoats and women cloth suits and coats all the year around. In Medellin, at a lower altitude, tliere is less cold felt but also an equable climate; tliere are two seasons, the wet and the dry, but these do not correspond to our changes, nor do tliey make perceptible difference in the clothing worn. In Barranquilla, nearly everybody has tunv, gala dresses for the Christmas and Ne\v' Year season, and I think the custom holds through- out the country. The carnival season from ,lan. 20 to Easter is a gay season and rich and ])oor buy alike, the best garb their purses will allow. Carnival season is peculiar to BarraiKjuilla, but the pre-lejitcn season is marked all through the country by gayety. PLANNING IN EXPORT TRADE 149 even electric lighting. Factories, institutions and homes of modern type furnish demand for these articles. A sec- ond class of users is to be found in the public utilities in- cluding municipal water works, sewerage systems, gas light, electric power and telephone systems. Likewise, railroads furnish a considerable market, since locomo- tives require much tubing and many valves, and in the repair shops a large quantity of the product is used in addition to regular operating requirements. Factories require piping for steam, water, compressed air, and for other purposes. Even in agriculture, irrigation furnishes demand in some sections for a very considerable amount of the Hight CompanN^'s product. In the domestic market the company sells through its own branches in a few cities and through various types of supply jobbers in others. In the foreign field up to the present it has sold through commission houses and export merchants. Orders which have been received have been intended mainly for the Far East and Argentina. The goods shipped have been unbranded, except in a few cases where private brand marks have been supplied. As a consequence, the Hight Company is not known in for- eign countries even where its goods have been used and have given satisfaction. It has recently been decided to go after export trade more aggressivel3\ The new export manager realizes the advantage of planning, not only for the present but also for a number of years ahead. He realizes that at best he cannot hope to work all markets of the world in the first year or even in the first five years. Therefore, in plan- ning one of the first things he must do is to determine which territories shall be singled out for early develop- ment and the order of their development. This will re- quire a division of the world into sales districts. The simple expedient of making the continents the major divisions does not appear to be satisfactory. There is greater similarity between Mexico and South America than between Mexico and Canada, although the latter two are on the same continent. There is greater difference between East and "West Europe than between Eastern 150 PROBLEMS IN EXPORT SALES MANAGEMENT Europe and Western Asia. As is stated in a Government bulletin,* from a commercial standi)oint this continental division does not mean anything. ' ' The parts of the same continent are often much farther apart commercially then two different continents. Trade does not group itself as to continents, but as to man}' facts unconnected with con- tinents. Transportation routes, the character and extent of population, the kind of govermnent, climatic conditions, harbor facilities, etc., all play important parts. There- fore, the continental divisions cannot be considered sat- isfactory as a basis for a study of the markets of the world. The political divisions might be logical, and in fact, most of our geographies take up the commerce and resources of one country after another, grouping the smaller countries around the larger ones. This is not an altogether satisfactory arrangement for purposes of for- eign-trade study, because of the fact that commercial im- portance and location rather than size are of greatest importance. A mere listing of the countries for the pur- pose of studying their commerce will give far from sat- isfactory results. ' ' Likewise, the Bureau of Foreign and Domestic Com- merce into five major groups — Latin America, Far East, West Euro]je, East Europe, and Near East — ^though more satisfactory than the continental division is too general to be of material aid for his purposes of planning. Two suggestions have been made for division into sales dis- tricts. One is that he adoi)t the Shipping Board division, which divides the world into ten major areas, these in turn being subdivided into forty-one trade regions. The outline map on page 151 shows roughly the grouping of li-ade regions.** The second suggestion is one adapted from a classiHcalioii snggcstc^l l\v Vose in The World's^ *Mi.sc-ell;iiieoiis >Series No. !t7, Tiyiiniiia fur Fs, fianidries, and macdiine shops of X'alparaiso and Santiago and the navy yard at Talcaliuno are all manned by British master niecdianics who naturally favor liritish macdiinery. The nitrate fields to the north are also controlled by Britishers and Germans who are partial to equipment made in their own countries. In the sale of piece jjoods there are six ];\vge British import and export houses pushinfj the sale of British textiles and it is extremely difficult for representatives of Ameri- can textile houses to sell to larj^e distributors. In all these commodities the American salesman must often l)e satisfied with the left-overs or business that is secured al)solutely on a competitive basis. PLANXIXG IX EXPORT TRADE 157 with the quota idea and more vrilliiig to attempt to achieve the goal set for him if he has had a part in determining what quota is justified in his district. The brancli man- ager and the export manager should sit down with each salesman, find out the ctealers to whom the company can expect to. sell its paper and also those who would refuse to buy under any conditions. The amount and kind of paper that the Pittsfield Paper Company could sell to each of these dealers in a season should be estimated and the total amount determined that could be sold in each to^vn or city.) The quota for each district could then easilv be ascertained bv securing the total of the esti- mates for each town in the district. (In a similar manner the quota for the braiich could be established by adding together the quotas set for each sales district^ These quotas would be built up from the bottom instead of being passed down from the top as was the case in the previous plan. The principal objection made to this plan is that it en- tails a considerable amount of work on the part of the export manager and his branch managers and consumes a large amount of time which might better be. spent in handling correspondence, planning advertising and sales campaigns, or assisting in making actual sales. . Again, since the estimate is colored with the views of the sales- man who is frequently a prejudiced jiarty too closely con- nected mth his territory to ^(ii a detached viewpoint, the quota established by this plan has been objected to as be- ing unscientific. /In fact with the different conditions facing each district and the difficulty of making accurate forecasts, because of seasonal variations affecting agri- cultural and other industries, it is extremely doubtful that it would be advisable to try to establish quotas on any basis. *^ ^Nothing has been written upon the use of quotas in planning foreign selling operations or the use of quotas in control of export salesmen. While a number of concerns Inulget foreign sales, few have gone to the length of assigning definite quotas to salesmen. The use of quotas is more common in the domestic than in the foreign market. Tlie principles and practices of quota-making are discussed by Frederick, Modern Salcsmanagemcnt, Chapter XI. Cf. also Staubacli, Territory Valuation, Bulletin of the Taylor Society, October 1921. 158 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 34 Red Star Shoe Company — Planning Sales Districts, the Routing of Salesmen, and a Sales Campaign Having built up a large business in the United States and Canada, the Red Star Shoe Company has turned its attention to the development of Latin-American trade. The same methods of selling directly to retailers will be used that have been so successful in making the Red Star brand one of the most popular medium price shoes in the domestic market. Four salesmen mil be sent into this new field as soon as the plans for the sales campaign are completed. These men will call upon the retailers in the principal cities having a large enough white population to warrant the operation of an up-to-date shoe, store, using the company's main office as their headquarters, they will cover their territory once every six months. Although the general foreign trade policy of the company has been decided upon, the following questions have arisen in planning the foreign sales campaign. How should the Latin-American field be divided into sales districts f How should salesmen be routed? Should a salesman write personal letters to each dealer in ad- vance of his visit? In view of the small number of sales- men available, should any territory be developed directly by mail ? Should trade-paper advertising be used or should all dealers be circularized directly from the home office':' Should the company assist its dealers in disposing of their stocks by general consumer advertising, or should it grant a lower price on the shoes, leaving the retailers to handle their own consumer advertising! Because of the reported strength of import houses in Argentina, an exception has been made of this territory; arrangements have been comjileted with a wholesale mer- chant in Buenos Aires to cover that city and all territory south of a line drawn from Buenos Aires west to Men- doza;* similar arrangements liave been made with a wholesaler in Rosario to cover Mendoza and all territory *See footnote oil next page. PLANNING IN EXPORT TRADE 159 to the north of this line including Asuncion, the capital of Paraguay, which is reported as having but few good business houses. In order to save both time and expense, it is intended to cover Bolivia in the same fashion. A good wholesaler in Lima is willing to undertake the distribu- tion of Red Star shoes in Bolivia providing he is given the agency for Peru ; in Valparaiso a wholesale merchant, equally capable, is willing to cover Bolivia providing he can have exclusive rights in Chile. As other wholesale houses are either inferior or carrying a competing hne, the choice depends upon which territory the company can cover to the best advantage with its own salesmen. There appears to be but little uniformity among Ameri- can exporters in establishing sales districts or in routing their salesmen in Latin- America. One shoe manufacturer divides Mexico into eight sales districts, selling to the re- tailers through native salesmen in the same manner as in the United States. Another manufacturer divides the same territory into three districts; one salesman, after covering southern California and Arizona, works south from Nogales through Guaymas and Mazzattas, to Tepic; another salesman crosses the boundary at El Paso, travel- ing south through Chihuahua, Torreon, Leon, Mexico City, and Puebla to Vera Cruz ; another enters the coun- try at El Paso and works southward through Alonterey to Tampico w^here he embarks for New Orleans in order to take a steamer for Panama and Central America. In the West Indies one salesman may devote all his time to Cuba, while a second visits the rest of the islands and Central America. In another instance one salesman covers all the West Indies and the principal cities of Venezuela and Colombia; occasionally Colombian** ter- ritory is combined with Central America. In covering South America, one salesman may take the north coast, another the east coast, and a third the west coast. For more intensive development of tlie territory *In granting exclusive ;i}jencies :il)ro;i(l i'oni[i;inies liave sometimes made tlie mistake of assigning territory to eaeh agent within a ten or twenty mile radius of his city ; consequently, a portion of the territory is either left unassigned, or else, because the circles overlap, the rights of several agents conflict. **See next page for footnote. IdO PROBLEMS IN EXPORT SALES MANAGEMENT one sales district may include Chile and Peru, another Venezuela and Colombia, a third northern Brazil, and a fourth the states of Eio de Janeiro and Sao Paulo. Para- guay may be included in the southern Brazil territory or covered from Buenos Aires in the Argentine sales divi- sion ; Asuncion in Uruguay may be reached by salesmen from either Buenos Aires, Rosario, or Montevideo. In sending out its salesmen, the company is governed by the fact that Portuguese is spoken in Brazil, although Spanish is the principal language of the other Latin- American countries. Since the important cities of Bra- zil, such as Para, Pernambuco, Bahia, Rio de Janeiro, Sao Paulo, and Porto Alegre, are either on or near the coast, the salesman can cover this district by vessel, making- short excursions by railroad to reach the inland towns. The same condition holds true on the west coast in the case of Lima, Arequipa, Iquique, Antofagasta, Valpa- raiso, Santiago, and Concepcion. Only in the northern part of Argentina is to be found a net work of railroads comparable to that in the United States.*** **Tlie following brief description of the three possible routes iu Colombia is condensed from PrnrticaJ Helps for Exporters, published by Dun's Inter- national Eeiaew. If he follows the first route, the salesman takes a steamer at Colon, Pan- ama, for Cartagena ; thence going up the coast to Puerto (\)lombia he takes a train for Barrancjuilla. I'assing u,p the Magdalena River, he stops first at Calamar, and later at I\Iom])os, where he may make a side trip by mule back to Magangua, Since, and Lorica ; the boat stops next at El Banco, a small river port, and Gamarra where the salesman again makes a trip by mule back to Ocana and Bucaramanga. Rejoining the river boat at Puerto Wilches, he proceeds to Puerto Berrio in oi'der to take a train for Medellin, the second city of Colombia, where mules are secured for the trip to Sonson and Manizales; returning to Puerto Berrio, he continues the trip by boat to Girardot, where he takes the train for Facatativa and Bogota. Upon completion of his business, tlie salesman retraces his route to Barranquilla. The second route begins at Buenaventura on the P.acifie Coast, from whence the salesman travels by train to Cali ; continuing to Palmira, he secures mules to carry him to Buga where he takes a boat for Cartage; again journeying by mule back, he reaches Manizales. From the latter city he may proceed to Bogota as previously described ; he may continue by mule back to Iboque and thence to Bogota ; or he may turn soutliward at Girar- dot passing by muk' back tlirough Noiv;i, I'apayan, I'asto, to Harbacoos where a river boat may be taken to Tunioid on the Pacific Coast. A salesman selecting the third route lands at the Venezuelan port of Maracaibo; crossing Lake ^Marai-ailto ami going up the Zulia Kiver he ar- rives at Puerto Villamizar, Colombia, where he takes a train for (^icuta, the most important city in the Jiortheastern section of the country. Parap- ***See next page for footnote. PLANNING IX EXPORT TRADE 161 lona is also visited from wlience tlie salesman may either return to Mara- caibo, or continue by mule back to Bucaramanga, covering the territory described in the first route. For more detailed instructions of value to travelers in Latin America, cf. Filsinger, CoriuncrcUd Travelers' Jlandhoo'k, published by the Depart- ment of Commerce. This is the type of useful publication of which we shall undoubtedly liave volumes covering other areas in the course of the next few years. ***The size of tlie territory Avhich can be handled by one salesman will depend upon several factors, among which are the following: (;i) Xumlx'r and cliaracter of customers and prospective customers. It is evident thnt more time can legitimately be spent witli ex- clusive agencies than if all dealers in the town are to be visited. It will likewise frequently happen that more time must be spent with a wholesaler than with a retailer. (b) Frequency of salesman's visits to customers. It is evident that the traveling salesman of the local br;incli, wlio calls upon liis trade once a month, can reach a much smaller number of customers than the salesman who visits hia trade only once in every three or four months. (c) Location of prospects or customers. A salesman can reacli more customers of a given type in a metropolitan area than in a rural district. In densely popu- lated areas he can make more calls than in sparsely settled territory. The policy of the company with respect to distri- bution affects the relative location of customers to be called upon. AVith exclusive agencies, each call will frequently mean to tlie salesman a trip between towns or even between coun- tries. The customers in one location may likewise have buy- ing liabits which require snlosmen to proceed more slowly than in other districts. (d) The character of the ])roduct. If the demand for the product is seasonal, sales will be made only during tlie buying seasons. If it is a staple product, standardized and well known, considerably less time is neces- sary for the salesman to handle tlie business with the cus- tomer. On tlie other hand, if the product is a new specialty requiring demonstration or one of a technical nature requir- ing tests, the number of prospects or customers reached will be decreased according to the difficulty of selling. The prestige and reputation of the selling concern will also mate- rially affect the time necess;iry to make a sale, also the amount of preliminary work done by the house. (e) Transportation facilities. Wlicre transportation facilities are adequate, where there is frequent train or steamship serWce, it is ob\-ious that the sales- man can cover much more territory or handle more customers or prospects than when delay caused by inadequate transporta- tion service is f recjueut. The usual references upon export toi)ics do not take up the i)robleui of planning export campaigns as a wliole. Consequently, planning to ensure correlation between personal salesmanship, advertising, and other means of selling has been definitely followed by comparatively few export managers, who have not yet put their exj)eriences or ideas into print. References upon constituent elements of the sales campaign will be found under the various headings and in the bibliographies in this volume. CHAPTER IV EXPORT POLICIES— POLICIES RELATING TO PRODUCT SOUND development of export trade requires the careful selection and judicious application of sound export policies. Anticipation of recurring situa- tions is essential in the formulation of any course or plan of action which aims at the upbuilding of a profitable for- eign business, but wisdom in the selection of policies is of little value if policies are frequently changed or if good judgment is not used in their application. It is sometimes convenient to classify business policies as policies of major importance, or administrative policies, and policies of minor importance, or detail policies. Major policies include the broader policies of a business enterprise, decision upon which usually has a direct bear- ing upon the operation of the entire enterprise. In prac- tice all such policies are determined not by the functional executive, such as the export manager or the sales man- ager, but by the general administrative officers of the company. Not infrequently they become the concern of the board of directors. Particularly when the applica- tion of policies involves large expenditures are such pol- icies decided upon by the higher officials. It is obvious that the decision to enter the export market, to sell in foreign countries, is a major policy; likewise, frequently, the general policy of export distribution — direct or in- direct selling. Minor or detail policies, on the other hand, include those policies necessary to carry out busi- ness operations in accordance Avitli major policies laid down by administrative authorities. In general it may be said that this is the field of policy determined by 162 PRODUCT POLICY 163 functional executives. It is e\ddent that in the case of pohcies concerning many phases of the business the line cannot be clearly drawn between major and detail pol- icies, for under certain conditions and with certain com- panies pohcies which are of subordinate importance may become vital to the existence or growth of the business. Export sales pohcies may also be divided according to substance into several groups: (1) Policies relating more particularly to the product, such as the shaping of the product for the export market; detail pohcies as to styles, models, and containers ; like- wise, guarantees as to service or quality and brand and trade-mark policies. _ (2) Policies relating to distribution—the choice of direct or indirect methods in selhng to particular markets and operating policies under whatever general methods may be selected. (3) Policies relating to prices and selling terms. (4) Policies relating to financing, credits and collec- tions in export trade. (5) Policies relating to claims and adjustments, can- cellations, returned goods, etc. (6) Policies relating to advertising, personal sales- manship, and management of sales force~\w general those pohcies relating to the use o/ the means of selhni>-' (7) Policies relating to tha delirerg of goods. It is also evident that pohcies mav be formulated con- cerning organization; in short, concerning every recur- rent phase of business operations, for unless a particular set of circumstances is of a recurrent nature there is no need ior the formulation of a policv. Bearing in mind always that decision may be varied by the different cii-cumstances of the market, the fundamental principles underlying export pohcy are the fundamental principles underlying sales policy in any market. Just as products must be shaped and packed according to the requirements ot the domestic market, so must thev be adapted to the 16i PROBLEMS IN EXPORT SALES MANAGEMENT foreign market. When for a long time, however, goods have been manufactured in one way for the domestic market, there is a tendency to assume that that is the only right way and to look upon any demand for vari- ation as inherently unjustifiable. In manufacture for the domestic market, as well as for the foreign market, decision to vary from certain established manufacturing standards is the result of balancing production and sales values and sales factors. The result may or may not be in favor of changing from standard. A. Policies Relating to Product -. 1. Guarantees of product as to quality, durability, and ser- vice rendered. Shall the exporter iiuarantee the products lie sells as to quality, durability or service reudtn-ed ? If so, should this take the f oi-m of a writteu f.''uarantee ? Is the sales advantage from an unqualified guarantee sufficient to offset the dangers of abuse? What should be the policy of the manufacturer with reference to goods I'etui'ued uiuler an indefinite guar- antee ? 2. Selection of products for manufacture ; full line versus specialties. What policies should the exporter adopt with reference to the selection of products for manufacture? Is it advisable for a manufacturer to add products in order to complete his line, either by manufacturing them himself or by purchase .' Will the addition of such prod- ucts tend to nullify the advantage of specialization? What policy should the exporter adopt with reference to changing products to meet demands of foreign buyers? 3. I'olicies as to change of style; new products. What policy should a manufacturer adopt as to change of style? Should he be conservative, attempt to keep up to the minute, or produce models or stvles which change little ? PRODUCT POLICY 165 What should be the policy of the company toward new products ; toward products the demand for which is a result of fad? 1. Policy as to service; repair parts, repair service, installa- tions. What should be the policy of the exporter with rejrard to service in connection with his product, where it hap- pens to be a complicated product .' Should i('])aii- service ]iolicy be made a sellinj,;' ])oint .' What ]:)olicy sliould Ije adoi)ted by the exporter who has no branch house or ay(^nt in the foreip'n territory to take charsie of the installation of complex machinery, etc.? 5. Brand policy; private brands versus manufacturei-s" brands; "family"' brands. What should be the policy of the nuinufacturer toward identitication of his product .' Should he establish his own brand or make his goods under brands designated by buyers — so-called "pi-ivate brands?" What should be the attitude of the export commission house toward private brands'? What difficulties does the manufacturer meet in trying to establish his own bi'and in foreign trade? Problem 35 Simplex Razor Company — ChaiNging Product to Meet Foreign Demand* Contrary to the policy followed by a number of safety razor manufacturers the Simplex Razor Company not only secures a profit from the sale of extra blades but also realizes a substantial return from the sale of the safety razor itself. This policy was adopted because the *Tliere are inimmcrable brief references as to the necessity of shaping the product to the demands and even the whims of the foreign buyer. Jii most cases sucli statements are uiuiualifitMl. general conclusions being drawn upon the basis of an instance or two in which trade has been lost through unwillingness of a particular manufacturer to comply with de- 166 PROBLEMS IN EXPORT SALES MANAGEMENT razor lias a sliarpeiiiiig ieatuie wliieli makes it possible to use each blade at least a month before discarding, and hence destroys the possibility of a large profit resulting from the sale of blades. Because the firm allows quantity discounts on large purchases and does not want to have the big retailer make it unprofitable for his smaller com- petitor to handle Simplex razors, it has refused to sell to any retailer who fails to maintain the $5 to $10 resale jjrice on its different models. The company has also found it desirable to maintain a comparatively high resale price because of the prestige, high quality, and air of distinction associated in the minds of customers with many high-priced articles. In the export field the company has adopted the same price policy as in the domestic market, but because of foreign competition it has been forced frequently to grant concessions. In England, France, Italy, and the Scandi- navian countries of Europe the company has succeeded in securing widespread distribution and there is a grow- ing demand for Simplex razors. At the present time four branches have been established in Europe and the com- pany is carrying on its sales campaign through advertis- ing and personal salesmanship much in the same manner as it has done in the United States, modifying its domestic policy only in so far as has been necessary to meet local conditions abroad. In Cuba, Mexico, and South America conditions are radically different from those in Europe. Each Latin American country possesses, it is true, a well-to-do class, but the great bulk of the population have but little money. Although the Simplex razor has been introduced in prac- tically all the large cities, its use is limited almost entirely to the upper classes, in spite of the fact that compara- mands. Upon the general subject, cf. Hough, Practical Exporting, pages 60-67; Savay, Principles of Foreign Trade, Chap. XXXII; Clerget, Manuel d'Economie Comcrciale, Chap. XVII; also the following articles: Printers' Ink Monthly. Dec. 1919, p. 89— "A British Company Tells Its War Komance." Export Trade ■ 2.171,477 1913 ■■ 2,158,384 Exports of All Wool Cloth and Dress Goods 1909 .$ 422,024 1910 660i010 1911 . 842,998 1912 792,879 1913 1,099,996 176 PROBLEMS IN EXPORT SALES MANAGEMENT Avore cancelled. Because of the marked falling off in volume of sales, the salesforce was reduced. Although many had hoped for a revival in the woolen export busi- ness, it has not materialized and the company's Latin- American sales are limited to a few suitings. At the present time the Federated Woolen Company is w^eigh- ing the expediency of taking on lines of cotton textiles, silk hosiery, and similar products for sale in Latin- America. In the production of cotton cloth American manufac- turers have a tremendous advantage over European man- ufacturers because of better machinery, superior methods of fabrication, and the economies resulting from larger runs. An English weaver attends twice as many looms in the British cotton mills as does the weaver on the con- tinent; yet an American weaver attends from two to three times as many looms as the English, operator. Even though American cotton mill operatives receive much higher wages than do foreign workers on similar grades, American methods of cutting the cost through quantity production are superior to those of most of the foreign mills. These reasons, together with the fact that large quantities of high-grade cotton are gro^\^l in the United States each year, give the exporter of American cotton textiles an advantage over foreign houses. A large portion of the business and commerce of Latin- America is transacted in the coastal cities. Many foreign manufacturers have not the capital, organization, or knowledge to deal vdth the small merchants scattered through the towns in the interior. Large import and wholesale houses have groA\ni up in the port cities, which purchase all kinds of supplies to be sent into the interior. By handling allied textile lines for which there is a sub- stantial demand, the Federated Woolen Company sales- men should be able to increase their unit sales and thereby reduce their overhead. The sale of woolen fabrics is a highly specialized busi- ness, however, quite different from the sale of cotton textiles. Selling houses in the United States recognize this fact so clearly that they specialize in only one of these PRODUCT POLICY 177 two lines. Following this practice in the domestic mar- ket, the Federated Woolen Company's salesmen have never handled cotton textiles or allied lines and the same objections against branching out in the local market should hold to a considerable extent for the foreign field. In Brazil where coarse cotton fabrics, used for sheets and pillow cases, are produced more cheaply than in the United States, the sale of cotton textiles would be lim- ited to the higher grades. Since a number of highly specialized cotton textile houses have been operated in the South American market for several years, it is doubt- ful whether Avholesalers would readily transfer their orders to the Federated Woolen Company which has but recently branched out vdth. lines of cotton textiles ancl silk hosiery. Problem 40 Tower Company — Repair Service and Contract for Agents Furnishing Service A number of complaints of defective operation have been received hj the Tower Company from foreign mills which have installed Tower textile machinery. Upon investigation the company has found that most of the troubles reported are due to careless handling and re- pairing of the machinery rather than to any defects in the machinery itself. In Japan, India, and other coun- tries, native repair crews are sometimes not familiar with the proper care and operation of modern textile machin- ery. Some of the machines complained of have been found full of lint. In others the oil had been allowed to run out and the bearings and gears were burned out. Still other machines were found out of alignment. Al- though the Tower machines were installed properly upon their arrival at the mill, in several instances it had been necessary to change their position. In resetting these machines the repair crews frequently failed to level up the base or to secure a firm foundation. Inasmuch as 178 PROBLEMS IN EXPORT SALES MANAGEMENT competitors are citing these instances as proof that Tower machines are defective and inferior, the company is considering estabhshing a repair service in the large textile centers such as Bombay, Osaka, Shanghai, Man- chester, and Leeds. The Tower Company sells its machines through its agents Avho are located in the principal textile centers of the world. These representatives carry stocks of spare parts and a small number of machines. To assist these agents in making sales and to supervise the installation of its machines, the company maintains a corps of travel- ing engineers. These travelers call on even the outlying plants at least once a year to give advice and to keep in touch with the managers so that no orders for new equip- ment will be placed without consideration of the Tower Company's product. Repairs, adjustments, and other changes, however, are left to the repair crew of each mill. It has been the polic}^ of the compam^ to sell its machines outright and not to lease or sell a service. If a repair service were estab- lished, a charge would have to be made for its work. Some of the mills might claim that the repairs were due to defects in the machines and ought to be made free of charge. A number of mill owners would probably object to having repairs made by outsiders, preferring to have their own crews handle this work. Moreover, many of the mills using the company's machines are located in small towns at some distance from any of these large centers, and obviously the number of points at which the company could afford to maintain a repair crew is small. One of the managers states that the company has always adopted the policy of replacing any defective parts free of charge, but that the mill owners must be responsible for proper care and maintenance. In his opinion the company's travelers should devote more time to explaining the proper care of Tower machines to the repair crews and spend less time in the front office with mill owners. The travelers, on the other hand, re- port that the same errors are repeated in spite of their attempts to instmct and train repair crews. PRODUCT POLICY 179 Should the Tower Company estabhsh a repair service for the foreign mills which have purchased its machines ! If so, what attitude should the company adopt toward an order from a mill located in a district where the com- pany was not able to furnish this service? Paet II The Tower Company is also considering whether or not its agents in the large textile centers should be under contract to carry spare parts and maintain a staff capa- ble of giving instructions in the replacing of such parts. At present these agents who handle both the company's machines and spare parts are not under contract as to the amount they must carry, and several instances have oc- curred where mills were not able to secure replacement parts immediately but had to wait until an order could be shipped from the States. Delays of this type are the cause of much dissatisfaction on the part of the foreign mill owners, since a disal)led machine is of little use un- less broken parts can be replaced promptly. The export manager, however, has always held the view that a contract is of little value except in case of legal action. In foreign countries the laws and court decisions are usually against American firms. The com- pany has never entered into formal contracts "^^'ith its agents because it did not care to be bound to a firm which later might prove to be an unsatisfactory representative. Furthermore, the export manager does not believe that the Tower Company is in a position to say how many parts should be carried by each agent. He is of the opinion that a good agent will always carry enough spare parts on hand to satisfy his customers and that occasional mistakes cannot be prevented even by having a signed contract. Should the Tower Company require its agents to enter into a contract covering the services to be rendered and the number of spare parts to be carried in stock? 180 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 41 The Shedd Rubber Company— Service and Guarantee The sales of rubber clincher tires of the Shedd Rubber Compaii}' in the Belgian market in 1921 were gradually falling off because of inability to meet foreign prices. The output of this company consisted of about 30% canvas rubber-soled shoes and 70% rubber tires, about 4% of the tires being exported. During 1917 the company began to sell tires to the domestic trade on a mileage guarantee, the company agreeing that if a tire wore out before it had been used 3,000 miles the customer would be given an adjustment in the price of a new tire. This policy was followed because at that time rubber tires were a new product and had not been fully perfected and it was necessary that the company stand behind its prod- uct. Grradually, however, the manufacturing process was improved and the life of the tire became longer. The guarantee, was then extended to 4,000 miles, 5,000, and finally to 8,000 miles. In 1921, the company terminated its guarantee policy. It appeared to the company that the privilege Avas abused by customers. Many customers would make a claim for an adjustment stating that the tire had been run only 4,000 miles whereas it had really been run 10,000 miles. Although terminating the guaran- tee policy the company was still willing to make an adjust- ment in case there was an inherent defect in the tire. The company had never done a great deal in the way of service for customers. It started an educational cam- paign in 1919 on a small scale regarding the proper air pressure in pounds per inch of tire or per pounds car- ried, the damage caused by car tracks, and the danger of small cuts. This campaign, which was carried on by advertisements and pamphlets, languished in 1920 and died out in 1921. In 1919 the total exports of tires from the United States to Belgium was $536,000; in 1920, $1,140,000. Dur- ing May, June, and July 1920 exports were $255,000; during the same months of 1921 they were $6,000. PRODUCT POLICY 181 In August 1921, the export sales manager of the Shedd Rubber Company received the following letter from the Belgian representative : ''Tire service is an argument very little used by Euro- pean producers, and in fact few American sales man- agers have gone out of their way to teach their local representatives the methods by which the sales of tires and tire accessories may be made a profitable adjunct to any garage business. One case is noted of an agent in Belgium for two well-known American cars. This agent has now in circulation about 200 machines, sold to satis- fied customers. It had, however, not occurred to him that tire sales to this more or less permanent clientele represented a comparatively easy and constant source of profit until this fact was brought to his attention by the representative of an American tire company. There is thus no doubt that instruction of local agents for tires and cars in the essentials of tire salesmanship would have a good effect on sales of American tires, since it is only by service that the initial price advantage of the European makes is overcome, while actual use on the road, once a tire is sold, generally should influence a Bel- gian car owner in favor of the American article. Special instructions are also needed on inflation, as Belgian chauffeurs frequently run comparatively low pressures in order to make the cars ride more easily. The life of an American tire properly inflated is generally three or four times that of the best European products." Should the policy of service and tire guarantee have been extended to the Belgian market ? 182 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 42 The Shaler Company — Brand Policy* The Shaler Company of Philadelphia manufactures 22 different varieties of knitting yarns used chiefly in the knitting of sweaters, mittens, woolen hosiery, scarves, etc. The company resells all "seconds" of wool, and places upon the market under its own brand only first- quality yarns. During the past ten years the company has intensively cultivated domestic consumer demand by means of advertising in periodicals of national circula- tion, by the distribution of instruction books upon knit- ting, by demonstrations in large stores, and by the use of dealer helps, and a large demand for its trade-marked yarns has been built up. However, the company has *In addition to the various references upon trade-marks as used in the domestic trade, see the following: Dudeney, The Exporter's Handbooh and Glossary, Chap. XV; E. B. Filsinger (Irving National Bank), Trad- ing with Latin America, pages 70-82; Preciado, Eccporting to the World, Chap. XXIII; Savay, PrincipTes of Foreign Trade, Chap. XL; Vedder, American Methods in Foreign Trade, Chap. XXV; Eder (Business Train- ing Corporation), Foreign and Borne Law, Chap. XIIT; Tariff Series No. 31, Registration of Trade-marks in Latin America. The World's Markets. March 1919, p. l(i — "Trjide M.iik Registration in Argentina." June 1919, p. 22— "Tlie Tr;ide Mark Laws of Brazil." Export Trade and the Exportir's L'crieir. Dec. 4, 1920, p. 11— "Tr.idc :M;irks Often Rejeeted on Grounds of Similarity. ' ' Dec. 18, 1920, p. 24— " Xew Argentine Tnide .M;irk Law Will En- sure Greater Protection. ' ' Jan. 8, 1921, p. 5 — "International Trade-mark Piracy Possi- bilities. ' ' Jan. 22, 1921, p. 46— "The Significance of the Chinese 'Chop.' " Feb. 12, 1921, p. 5— "When Should a Trade-mark Be Trans- lated?" Feb. 26, 1921, p. 9— "On Protecting a Trade-mark 'in all Countries. ' ' ' Aug. 20, 1921, !>. 14— "Germany Will Xot Ilnve Norwegian Snr- dines. ' ' Aug. 20, 1921, p. IS—" 'By Their Trade-marks.' " Sept. 10, 1921, p. 16— "How Trade-marks in China Are Pro- tected. ' ' Oct. 8, 1921, p. o— "Your 'Chop' in China." Dec. 31, 1921, p. i;5— "Pitfalls in Foreign Trade-mark Selection." Feb. 11, 1922, p. 13 — "Legal Aspects of Foreign Trade-mark Eegistration. ' ' From time to time there has been agitation for an international trade- mark for all goods manufactured in this country; there are numerous articles in Printers' Ink upon this subject. PRODUCT POLICY 183 never attempted to develop the foreign market in com- petition with European exporters. Small amomits have been sold in South American countries, but the prob- lems of the domestic market have occupied the attention of the officials so fully as to preclude the active develop- ment of the foreign market up to this time. In the fall of 1921 the Shaler Company received an order for $300,000 worth of yarn from an importer located in Buenos Aires.* The order was to be filled only if the Shaler Company manufactured a grade of yarn inferior to their best and only if the importer's private label could be placed upon the jsn'ii. Thus, in two re- spects the filling of the order would cause a departure from established policies: first, in manufacturing an inferior grade of yarn in spite of the fact that the com- pany has always taken sjoecial pains to sell nothing but the first-quality yarn. In the second place, the company has since the beginning of its advertising campaign con- sistently refused to fill orders for private brands, although many such orders have been received from domestic dry goods jobbers. Nevertheless, one of the company's mills was shut down for lack of orders at that time and the initial order from this Argentine im- porter would have assisted considerably to reduce over- head and to keep the organization together. The order has also opened up the eyes of the officials of the com- pany to the possibilities of the South American market. The company must therefore decide whether or not to accept the order, and in deciding determine upon a defi- nite policy wdth respect to private brands in foreign trade. If private brands are not to be used, decision should also be made upon the use of the manufacturer's brand. If the Shaler Company decides to develop foreign markets for its yarn, shall it use the brand which has been used in the domestic market in all foreign markets or shall it *Before the war it was customary to send Argentine wool to Germany for spinning. The yarn received in return did not possess the elasticity which the yarns of the Shaler Company possessed and were therefore not so suitable for knit outer wear as those made in Philadelphia, but they were sold at about 30% less than the Shaler Company could charge for its yarn. Further study of the South American market showed also that the women of South America were generally less adept in knitting and in de- signing garments made from yarn than their sisters in the United States. 184 PROBLEMS IN EXPORT SALES MANAGEMENT establish different foreign brands f Shall the same brand be used for all foreign markets? The sales manager of the company, in considering the lack of knowledge of South American women concerning the use of yarns, proposed the establishment of retail stores in Rio and Buenos Aires, the purpose of which should not be primarily that of selling yarn but rather to serve as demonstration establishments in which classes might be conducted and in which exhibitions might be made of knitted garments ; this would assist development of a demand for yarn by novel means unnecessary in the domestic market because of the general knowledge of its uses. Problem 43 Federated Paper Company — Registration of Trade-Marks The general manager of the Federated Paper Com- jjany, which distributes paper, printing machinery, type- writers, and office supplies in the foreign field, recently received a report from its branch manager in Argentina suggesting that the company register the trade-marks of all the manufacturing companies whose products it sells, regardless of whether or not these products are being sold in Argentina. The Argentinean manager stated that, although he realized the cost of such registra- tion would be high, he wished to point out that whereas in England and the United States no one can register a trade-mark Avho is not actually using that trade-mark in his business, in Latin American countries a trade-mark can be registered at any time by anyone so long as he pays the registration fee. Furthermore, in the United States the ownership of a brand depends not alone upon registration but upon prior use. Even if a brand has been registered and used for several years by a man in interstate commerce, in dealing with a foreign country, or with an Indian tribe, the oAvnership of the brand is not determined merely by registration. If another com- pany can prove that it has used this brand previously. PRODUCT POLICY 185 the government protects its right. In Argentina, as well as in many other South American countries, however, the owner of a trade-mark is the man who first secures this registration, regardless of the length of time that it has been in use by another company. This branch manager called attention to the fact that the Federated Paper Company had already had diffi- culties in Latin America in one or two instances because of the previous registration of some of its trade-marks on printing machinery and that although the company had been able to get around these difficulties in these instances by dropping the word "machinery" out of the name, nevertheless the situation was serious as evidenced by the attitude taken by several American exporters who had registered their trade-marks in Argentina regardless of whether their products w^ere being sold in that country or not. In the opinion of the general manager of the Feder- ated Paper Company, all these stories concerning the necessity of trade-mark registration for all the products sold by American exporters, were doubtless instigated by registry officials of the different countries who wanted to secure as large fees as possible. Even if a citizen of Argentina or some other country did register a trade- mark for some of the lines which the company carried but did not sell in Argentina, the good-will of the Feder- ated Paper Company or its subsidiary company would not be injured unless this man actually manufactured these allied lines. The general manager said that as long- as the company sold but few of its products in Argentina, he saw no reason why it should register the trade-marks of all manufacturers of paper, printing machinery, tj^pe- writers, and office supplies whose products it sold. If, for example, a South American should register the trade- mark of a grade of paper manufactured by the Case Com- pany, the latter could easily continue to sell its paper in South America by changing the mark and stating that it was a new brand of paper manufactured by the Case Companj^ In this way, the good-will l)uilt up by the 186 PROBLEMS IN EXPORT SALES MANAGEMENT Case Company would be transferred to any brand that it manufactured. The aysistant manager was inchned to agree mth his chief that there was Httle need for the registration of trade-marks of products the sale of which the company did not regard as important in Argentina, but he was not inclined to adopt the same policy in China. He called the attention of his superior to the following extract from an article in Printers' Ink for May 15, 1919 : In one respect the piracy of trade-marks in the Orient is for the American manufacturer a more serious matter than trade- mark piracy in Latin America, even if we leave out of consider- ation the disparity of the native populations that might possibly be deceived. In Central and South America the misappropria- tion of trade-marks is usually carried on by pirates who frankly liold the marks for ransom. Usually they make no effort to mauufacture under the brands to which they have gained title by priority of registration. At worst, the Latin American di- lemma may be that presented by a sales agent who has registered marks in his own name as a means of controlling the exclusive selling rights in his territory. In the Far East, on the contrary, trade-mark piracj^ is almost invariably incident to imitation of the goods. This is the element in the situation that holds the greatest menace for American good-will. With an effrontery that might provoke a smile were it not so serious a matter, a Japanese raider recently simulated every detail of the dress of the goods of a well-known American spe- cialty. Not only was the trade-mark reproduced, but all the markings of the American package, including the following in- scriptions : ' ' The Original and Genuine, " " Bottle and Label Kegistered in China, Japan, and Korea," "Beware of Imita- tions." Going a step farther, this Japanese flattery has lately extended to the placarding of imitations and counterfeits with the line. "Made in America," or "Made in the U. S. A." The best-informed representatives in the Far East of the Bureau of Foreign and Domestic Commerce predict that this form of mis- representation is likelj^ to increase considerably in future. In a recent confidential report to the Bureau of Foreign and Domestic Connnerce, Commercial Attache Arnold, who has for years watched with ever-increasing misgivings the rising tide of trade-mark piracy in the Orient, emphasized the fact that American manufacturers do not take into consideration that the ordinary Chinese, not reading or writing English, becomes fa- miliar with a trade-mark only in its general rather than in its detailed features. lie is thus easily misled by imitations even if PRODUCT POLICY 187 the imitations carry somewhat diffevent descriptive matter and vary somewhat in the English names. It is the trade-mark or "chop"' that counts in the e^^es of tlie ultimate consumers in the Orient. The Japanese have, more's the pity, one indisputable answer for many of the protests against Japanese appropriation of American trade-marks in Chinese commerce. They point to the fact, so generally overlooked by American business men, that a trade-mark convention between the United States and Japan provides for reciprocal protection of trade-marks in China, pro- vided American trade-marks have been registered in Japan for use in China. Thus, important as it is for an American manu- facturer to register tentatively his trade-mark in China, it is even more important that he register at Tokio, in order to fore- stall infringement at the source. Otherwise a Japanese manu- facturer may, by virtue of his trade-mark registration in Japan, market in China goods that are a bald imitation of American products. An indignant United States manufacturer may de- nounce an infringing mark as a forgery. But it is impossible to get around the fact that, owing to his negligence, the accused design comes into the Chinese market with all the prestige of a mark duly registered in Japan, bj^ a Japanese company as a Japanese trade-mark. Under such circumstances the United States consular officer who seeks relief or redress for an Ameri- can client is at a serious disadvantage. The general manager took the view, however, that there was even less cause for registering a trade-mark in China and Japan than in South America, for the com- pany sold very few products in the Far East and even in the case of the few articles such as fountain pens, special inks, and desk supplies which it sold through agents, the company suffered no real danger through not ha\T.ng its trade-marks registered. He said that it was all right to talk about the Japanese capitalizing on the good-will of American manufacturers, but when the sales of a prod- uct were neghgible or the company had not even entered the Japanese market with some of its products he did not see how the Japanese could possibly capitalize on the company's good-will. This official said that he would be in favor of registering the trade-marks of all the com- panies, whose products the Federated Paper Company handles, in an international bureau which would auto- matically register the trade-marks in all the countries of 188 PROBLEMS IN EXPORT SALES MANAGEMENT the world. The United States, however, was not a party to the arrangement of Madrid at Berne. Although the American Government was a party to the Buenos Aires convention, this agreement applies only to fourteen South American nations and the Federated Paper Company has already registered all its trade-marks with the central bureau of this organization in Havana. The general manager believes this to be a step in the right .direction, but considers it a Avaste of time and mone}'^ to register trade-marks in each country irrespective of the com- pany's sales volume in that country. Should the Federated Paper Company register in Argentina the trade-marks of all its products, or should registration be restricted to only those lines which the company is endeavoring to push? Should the company register all its trade-marks in Japan and China? Problem 44 Williams and Knox Company — Policy of Export Commission House The Williams and Knox Company is a commission house engaged in the export of hardware, machinery, provisions, chemicals, and general merchandise particu- larly to the following countries — Australia, New Zealand, South Africa, and the Far East. During the war period the business of the concern grew very rapidly. During 1919 total sales in these markets amounted to over $6,000,- 000; during 1921, by way of contrast, the business had fallen in dollars to less than 40% of the record. The com- pany has been in business for many years. It has executed indents for customers in the Far East and has upon occa- sion attempted to introduce goods on its own account. Its general policy lias been that of selling unbranded goods wherever possible, sometimes adding its own brands. Branded goods have been sold only when there was definite order on the part of a customer. PRODUCT POLICY 189 The Williams and Knox Company, in reviewing the general situation, has come to the conclusion that unless the commission house establishes a good-will of its o"s\ai and establishes its own name in particular markets, it will not be able to continue to do a profitable business. Two proposals are being considered. The first is that the company specialize more and more in hardware and machinery lines in which it has been most successful, attempting by concentrated effort over this broad field to secure a much larger proportion of the market for ma- chinery of various types. The second proposal is that the company continue to handle general merchandise including both textiles and foodstuifs, but that it adopt a policy of developing and advertising its own brands, purchasing such goods as it needs from the mills upon specifications labeled mth private brands of the Williams and Knox Company. Should either of these proposals be adopted? CHAPTER V EXPORT POLICIES— POLICIES RELAT- ING TO DISTRIBUTION THE choice of policies regarding distribution de- pends upon a number of factors. The type of product and line of business have a very important bearing upon the decision as to channels of distriliution to be utilized, because the external organization avail- able for distribution depends in part upon the type of product. That is, in the export of raw materials, mid- dlemen with slightly different functions would have more to do with the distribution of the product than if the product happened to be a manufactured article, possibly of the specialty type. Decision upon policy may depend likewise, as between different manufactured products, upon their nature — whether a staple or a novelty, or a specialty which is comparatively unknown and the sale of which depends upon the active canvassing of a market. It may be found that if the article is complex — a complicated machine, for instance — middlemen or the usual channels of distribution arc not suital)le, that in order to render service and build up good-will as a basis for continued foreign business it is necessary to establish service sta- tions. It has been said that the type of product and the external organization for foreign trade are closely con- nected. It is . obvious of course that the exporter mil utilize the commercial organization of international trade in so far as it is to his advantage, and the existence of specialized types of middlemen, the existence of spe- cial financing agencies, and the existence of special facil- ities for delivery will all liaAc their bearing upon his distribution policy. 190 DISTRIBUTION POLICY 191 Next, the size and financial resource.s of llic exi)oi-tini>- enterprise will have an inHuenee upon tlie selection o? export methods. \MiiIe direct exporting is by no means confined to large concerns, the small concern will not infrequently find it advantageous to utilize export mid- dlemen and to refrain from any attempt to reach the market direct. On the other hand, while the very large concern may often find it advisable to estabHsh branch offices^ and even branch factories in some foreign coun- tries, it may be found to be good policv to utilize middle- men in reaching other markets. The personnel of a business concern and the personal- ity of leading officials will always have a modifving infiu- ence upon general pohcies, because in export ^operation as m so many other phases of business poUcy there is no one decision which can be said to be right to the exclu- sion of all other alternatives. The interest of officials will frequently determine whether a concern shall under- take direct exporting or continue to use middlemen. Lastly, the characteristics of the markets in which export trade is to be developed will have a very real efieect upon the choice of export methods and upon the determination of export policies. It is probable that no single export method will be suitable for all markets. The reasons for variation of pohcy between the Far East and the British Isles are to be "found not only in the commercial organization but also in the dilTerences between the two markets. There is a common tendency among both the initiated and the uninitiated to look upon the channels of distribution in foreign trade as much more complicated than those in domestic trade. That such conclusion is not justified may be illustrated by the f ollomng comparison of the methods of selHng : * *Cf. The New England Exporter, bv Ilarrv R. Tosdal nublishpd by the Boston Chamber of Commerce, 1922. ' losaai, putjii!,iied 192 PROBLEMS IN EXPORT SALES MANAGEMENT Distributing to Foreign Buyers : (1) Sale through export com- mission houses. Practically a domestic transaction, though some risk resting upon manufacturer. Techni- cal details of exporting handled by export com- mission liouse. Distributing to Domestic Buyers : (1) Sale through commission house or selling agent. Purchasing agent as in hardware trade or selling house as in textile trade. (2) Sale to export merchant ill the United States. To all intents and pur- poses, a domestic trans- action. Credit risk bas- ed upon credit of ex- port merchant, not upon that of foreign buyer. All foreign details of shipping, financing, etc., handled by export mer- chant. (2) Sale to jol)ber or uhole- saler. (3) Sale through manufac- turers' agent specializing in foreign markets. Agency agreement ; sale carries risk varying with nature of that agree- ment. Agent handles details of exporting, shipment and financing. (4) Sale to importers (deal- ei's) in foreign country. Credit risks and details of shipment handled by exporting manufacturer or arranged by him. Im- porter may be general importer, wholesale or retail, or dealer. (.')) Sale tlirougli l)raneli houses abroad to dealers or eoiisuiners. Credit risks and details of shipment handled by exporting manufacturer. (?)) Sale through manufac- turers' agent. (4) Sal(> to jobbers or whole- salers. (.■)) Sale through branch house in domestic mar- ket to wholesalers, retail- ers, or consumers. DISTRIBUTION POLICY 193 (7) Sale direct to retailfrs or consumers. (S) No domestic parallel. Laws forbid combina- tions in domestic trade (6) Sale through sales agents (6) Sale through agencies, abroad. retail or wholesale, ex- Usual risk assumed by elusive or non-exclusive. exporting manufacturer, depending upon terms of contract. Agencies frequently exclusive; sometimes credit risk del credere. (7) Sale direct to retailers or consumers abroad. Credit risks and details of shipment handled hy exporting manufacturer, (H) Sale through export com- binations to 1) u y e ]• s abroad. Contingent risk on ex- porting member. Devel- opment of markets, de- tails of shipments, financ- ing in hands of combi- nation officials. The manufacturer who wishes to dispense with many of the responsibilities and details of export business will find it most convenient to sell through export houses, commonly known as export merchants and export com- mission houses. These are middlemen in foreign trade corresponding to wholesalers, jobbers, or commission merchants in domestic trade. The export merchant, corresponding most closely to our wholesaler or jobber, purchases goods outright, pays for them, and there the transaction may end for the manufacturer. The export house should consist of an organization which under- stands every branch of business abroad. Just as in domestic houses some specialize in dry goods, groceries, or other products, so the export commission house is apt to be a specialist. Very small houses must specialize; very large houses are able to handle many lines, because of size. The export merchant, like the domestic whole- saler, buys where he can to the best advantage and sells in markets that he has developed for the best prices that he can get. He endeavors to build up good-will for his house, but it is evident that he can do this successfully 194 PROBLEMS IN EXPORT SALES MANAGEMENT only if he specializes either in products handled or in market exploited. Export merchants have usually estab- lished branch offices or close affiliations in the foreign sections in which their business is developed. In this respect their organization is very much the same as that of the manufacturer who exports direct on a large scale. The export house usually does not restrict itself to products of its own country, but aims to sell in certain territories regardless of the origin of wares required for those territories. On that account an export house may distribute foreign goods as well as those produced at home. The export merchant has been very important in the development of German trade, and there is a tendency to combine bankin.g with merchant functions in both Germany and England. In the American market, how- ever, the export merchant is not so important as the export commission house. Theoretically at least, the export merchant buys and sells on his own account, while the export commission merchant buys and sells for the account of the buyer. Practically, there has been confusion of functions, and export commission merchants will frequently buy and sell on their own account. Much more important in the foreign trade of the United States is the export commission house, which was originally organized to execute orders in a country for foreign importers. In other words, the commission house was originally organized to execute orders of buyers and was the buyers' agent, income being received from commissions paid b}^ buyers. The organization developed was much like that of the export merchant, having branch offices established in various cities and abroad. Likewise in specializing, the commission house is similar to the export merchant. There is specialization according to products handled, also according to markets. At the outset, commission houses got orders from foreign buyers through correspondence, salesmen, or advertis- ing. These orders, or indents as the)' were called, would be transmitted to mnnufacturiTs after bids had been received from competing manufacturers. AVlieu the DISTRIBUTION POLICY 195 orders were shipped, payment was made or credit risk assumed by tlie commission house. There has been a tendency for exj)ort commission houses to develox3 along other lines. Many of them undertake to buy commodities from foreign markets and sell in the United States and to act as merchants' agents for American manufactures in foreign countries, thus departing from conmiission practice. Since a manufac- turer who develops his foreign trade to satisfactory volume usually desires direct contact with foreign buyers, there is a tendency for the field of the export merchant and the exjjort commission house to be restricted. As a consequence they have taken on new commodities and new functions in their position as agents for American manufacturers. From the point of view of the manufacturer who desires to enter foreign trade, the export commission house offers much the same advantages as the export merchant in that the commission house assumes all the routine of shipment and collection, frequently guaran- teeing credits or paying cash for the goods. Technically the export commission house is the agent of the buyer, but frequently there has developed the practice of col- lecting commissioris from both buyer and seller. Ethi- cally this is not good practice, but so long as the interests of both parties are reasonably protected it will persist. It is evident that both experienced and inexperienced exporters can get best service from an export merchant or commission house only when the markets in which the house is best represented and the lines handled are known. If specialization is according to the lines handled by a particular manufacturer in markets he desires to reach, he may find it to his advantage to utilize these middlemen. Ordinarily such middlemen are not to be regarded as the most effective means of exploiting a new product or a new market. New goods of the type of specialties, to the use of which foreign buyers must be educated, are usually handled by the export merchant or commission house as they would be handled by the local jobber or wholesaler in the domestic market. Just 196 PROBLEMS IN EXPORT SALES MANAGEMENT as the manufacturer cannot ordinarily expect the domes- tic jobber or wholesaler to push his lines to the exclusion of other lines when he handles a variety of goods, so he cannot expect the export commission house to push goods to the exclusion of others. At "best special arrangements may be made, but promotion work should be entrusted to the care of such houses only with clear understanding on both sides. In so far as the export house handles competing lines or engages to represent competing manufacturers, there is always danger that one or the other may be neglected. In selling to the export merchant oi- commission house, the manufacturer should determine in what markets the export merchant is best lifted to sell; and, if it is decided to grant an exclusive agency, territory slnuild be care- fully defined so as not to limit future development. Granting exclusive rights for too wide a territory hinders future development. Obviously no house can adequately represent the manufacturer in a wide zone including China, Japan, India, Dutch East Indies, and the South- ern Pacific when distances are reckoned in thousands of miles and population in hundreds of millions. Although these export middlemen offer particular advantages to the exporter with small resources, the services performed are frequently of value even to very large concerns having their own selling organizations abroad. The United States Steel Corporation and other large exporting concerns make use of exijort commission houses in certain markets, which their own organizations are not able to reach so efi"ectively. From the view-point of the buyer, services performed are much the same as those of jobbers. They enable the foreign buyer to purchase expeditiously in various markets without hav- ing to attend to many details, which would be necessary without the intervention of these agencies. Commission houses perform a necessary service and are used very widely in this country. In a general way, we may say that exporters in this country tend to use export mer- chants and commission houses to a very large extent in dealing with Asia nnd tlu> Far East. In Australia and DLSTRIBLTIOX POLICY 197 in South Africa, sales are almost entirely in the hands of commission houses. In South America our export houses do a large business, although more is being sold direct as the volume of business increases sufficiently to warrant it for indixidual concerns. Generally speaking, our trade with Mexico and Canada is handled direct. The commission charged by houses varies from 1% to 87c, depending upon the type of goods, the number of items, the risk involved, and the detail involved in making up shipments. The general tendency is for the exporter to reach his markets dii'ect as soon as his business warrants the expense. Just as the manufacturer tends to go direct to wholesaler or retailer or even consumer in domestic trade in order to secure greater control over the ultimate demand, so in foreign trade that house which is closest to the ultimate buyer has the strongest hold upon its trade. In many other respects the parallel might be drawn between direct exporting and the movement toward more direct domestic sale, toward passing over middlemen to get nearer to the consumer. The major question of policy is one which is frequently decided by the administration; namely, whether the con- cern should export directly to buyers in foreign countries or make contacts with foreigners indirectly through mid- dlemen in this country. If a manufacturer has decided to export direct, it is assumed that he is prepared to undertake all the responsibilities of that decision. He must build his own export organization, analyze markets, exploit territories, pass judgment upon credit informa- tion, and make his shipments and collections as he would in domestic trade. By so doing, he may save a portion of the middleman's i)rotits, but the chief advantage from direct exporting is the opportunity he secures to build up good-will directly for his firm and his product. Direct sale to foreign buyers involves more expense to the manufacturer than sale through middlemen. It requires a larger organization, and as in domestic sale the size of that organization depends upon various factors. Nevertheless, whether or not foreign trade is profitable depends upon the usual market considerations of volume, 198 PROBLEMS IN EXPORT SALES MANAGEMENT trade possibilities, capital available for development, and proper management ; not upon the choice of direct or indirect exporting methods. In direct exporting, organ- ization and management is one of the first problems. The inexperienced exporter, if he has determined upon direct exporting, must then decide to what extent he will build up his home organization. Two choices are open: first, the modest policy of "pay as you go," the policy of slow but sound development ; and, secondly, the policy of thorough equipment and comparatively large organiza- tion, in other words making a splurge in the hope that quick development will compensate for the initial expense. In the following outline are indicated some of the problems which must be met, in deciding upon both the general policy of distribution and the detailed problems in carrying out a policy of direct distribution in foreign markets : A. Policies Regarding Channels of Distribution : 1. Indirect versus direct methods. Shall the small concern attempt direct exporting- or shall it rely upon indirect methods! Under what conditions shall concerns which export di- rect in some markets export through middlemen in others ? For what types of goods are indirect methods especially fitted ? Do specialties or novelties always call for direct methods of export? 2. Sale through export commission houses and export mer- chants in the United States. What are the functions of export commission houses? Of export merchants? Under what circumstances can export commission houses and export mcrch.inis be Uf^ed advantageously by a manu- facturer seeking to develop a foreign market for his goods? DISTRIBUTION POLICY 199 "What precautions should be taken so that the develop- ment of the manufacturer's foreign business shall not be ham])ered ? What should be the attitude aud policy of export com- mission liouses and export merchants toward manufac- turei's ? Should export middlemen undertake to push the goods of any one manufacturer? 3. Sale through manufacturer's agent or combination export manager. Under what conditions can the manufacturer's agent serve the manufacturer better than can the export commission house ? What are the advantages of the combination export man- ager ? What are the weaknesses ? 4. Sale to importers or dealers in foreign countries. Under what conditions is it wise to sell to dealers in for- eign countries without establishing agencies? Ts such a plan suitable for goods which require unusual sales ettbrt? In what respect does the policy of sale through dealers abroad diifer from the domestic policy of sale through dealers ? 5. Sale through branch houses abroad to dealers or consumers. Under what conditions is it advisable to establish branch houses ? Should branches be treated as semi-independent units of an organization or should they be closely controlled? Should branches carry stock? Should branches be manned by native or American per- sonnel ? 6. Sale through sales agents abroad. Under what conditions is it wise to appoint agents? 200 PROBLEMS IN EXPORT SALES MANAGEMENT 7. Sale direct to retailers or consumers abroad. When is it wise to sell direct to retailers or even to consumers abroad '? What are the advantages and disadvantages of such methods for products for which an organization of mid- dlemen may be utilized ? 8. Sale through export combinations to buyers abroad. When is it advisable to join an export combination in order to develop foreign sales? What is the nature of a desirable export combination from the view-point of a.memlier manufacturer? What should be the form of such a combination? Should the policy of such a combination diifer materially from the policy of the individual large manufacturer in exporting to foreign markets? B. Policy Relating to Dealers and Agents: 1. Exclusive agents. Under what conditions sliould a company grant exclusive agencies ? How is the territory to be granted to an agency to l)e determined ? 2. Attitude toward dealers — dealer helps. To what extent should the manufacturer attempt to help foreign dealers to resell goods'? How should a policy of dealer aid be carried out? Should a defniite plan of cooperation be included in the agency contract ? 3. Agency contracts. Sliould contracts be used? What should be the provisions of an agency contract? DISTRIBUTIOX POLICY 201 ■1. Wholesale and retail agencies. Under Avliat conditions may it be advisable to give the ex- clusive agency for goods to a wholesaler who is also a re- tailer? Under what conditions may the operation of a retail es- tablishment narrow the field for the sale of a product ? 5. Attitude toward newer types of retailers. What should be the attitude of the manufacturer toward sale to department store, cooperative societies, chain stores, and mail-order concerns as they exist in countries outside of the United States ? Should a concern which lias adopted the general policy of selling only to wholesalers sell to a large department store in a South American or Chinese city! Problem 45 The Twitchell Company — Commission House versus Own Salesmen"" Although its relations with commission houses have been fairly satisfactory, the Twitchell Company is con- sidering the establishment of its own foreign salesforce. For over thirty years this company has been manufac- turing pipe unions, valves, and fittings, and has been handling its export business through commission houses in New" York City. Its total yearly business in foreign countries has now reached $940,000, which is roughly one-seventh of its total sales volume. Several com- panies with this amount of foreign business are dis- tributing their products through their salesforces. These firms maintain that they have received many advantages from handling their own exports direct. *0n export mcrcliants aud export commission houses, their services, their advaiitiigos and disadvantages, see the following: Dudeney, The Exporter's Handbook and Glossary, Chap. VII; Ford, The Foreiqn Trade of the United States, Chap. VII; Hough, Practical Exporting, Chap. VIII; E. B. Fil singer (Irving National Bank), Trading tcith Latin America, pages 70-77; Preoiado, Exporting to the World. Chap. VIIT; A'edder, American Methods 202 PROBLEMS IN EXPORT SALES MANAGEMENT By dealing through a commission house, which main- tains a hirge salesforce located in several important for- eign centers, the Twitchell Company has experienced many advantages. A broad distribution has been secured for its product and a more stable volume of sales. When the market in the Argentine slumped a few years ago and there was no demand for pipe tittings, additional pressure was brought to bear on the commission house salesmen in other countries, and as a result approxi- mately the same amount of export trade was maintained. With its large salesforce such a house was able to take care of dumping after a surplus had been built up in this country. Because of its specialization and experience in the for- eign field the commission house has been in a position to give the Twitchell Company advice in regard to export. By having its salesmen on the ground the commission house has also been in position to extend credit, make collections, and arrange for adjustments. Since it is familiar with the technicalities of the law in the various foreign countries, it has readily taken care of the billing and shipping of the goods. The manufacturer was thus in Foreign Trade, Chap. IV; Wolfe, Theory and Practice of International Commerce, Chaps. Ill & IV; Kidd, Eidd on Foreign Trade, pages 344-348; Hellauer, TVelthandeJslehre, paragraphs 30-58; Bacher, (Business Training Corporation), Export Technique, Chap. V; Richards (Business Training Corporation), The Export Commission House (Part II of Export Houses) ; Fowler (Business Training Corporation), Export Houses (Part I of The Export Merchant) ; also tlie following periodical references: Proceedings of annual conventions of National Foreign Trade Council: 1914, p. 150, George L. Duval— "The Eelation of the Merchant to Import and Export Trade. ' ' 1921, p. 472, F. W. Lincoln— "The Service of the Export Com- mission House and Its Relation to the Exporting Manufacturer. ' ' 1921, p. 476, Wm. E. Peck — "Service of the Export Commission House with special reference to Financing Shipments and Han- dling Documents. ' ' 1921, p. 483, A. C. Callan — "Service Rendered on the Pacific Coast. ' ' Export Trade 4' Exporters' Review. Mar. 26, 1921, p. .5 — "Where the Commission House Aids the Exporter. ' ' Apr. 29, 1922, p. 8 — "The Continued Importance of the Commission House. ' ' The World's MarTcets. June 1921, p. 25— "The Export Commission House." DISTRIBUTION POLICY 203 relieved of most of the bother and complications devel- oping from the handling of a foreign business, and has been able to devote himself exclusively to manufacture and domestic selling. In fact, in handling its export trade the Twitchell Company in the past has been able to sell its merchandise on domestic orders to the com- mission house, receiving its money as soon as the goods arrive in Xew York, and leaving the commission house to handle the actual exporting of the goods. By having its salesmen distribute several lines of mer- chandise the commission house is frequently able to operate at a lower selling expense than is the manufac- turer whose salesmen usually handle but one line of goods. This is particularly true of a "short line," where a manufacturer produces only a limited number of sizes and styles. To avoid this difficulty some manufacturers have been able to secure contracts to handle allied lines through their own salesmen, thus obtaining some of the advantages of the commission house. Although the Twitchell C^ompany would not have the difficulties of a "short line" manufacture, still if it establishes its owii foreign sales organization it would in all probability have a high salesforce expense, since up to the pre.^ent time it has not found any manufacturers of allied lines who are willing to make arrangements to distribute their products through the Twitchell Company's salesmen. The managers have found, however, several disadvan- tages in handling an export business through commission houses. In the first place such a commission house has not built up a permanent business for the manufacturer, since its purpose has been to sell merchandise and its salesmen have not concentrated on any particular brand of goods. Furthermore, by dealing through a commis- sion house foreign buyers do not become acquainted mtli the manufacturing company. They are not familiar ^\dth its policies, neither do they receive the same service that would be rendered by the company's own salesmen. By selecting its own salesmen the Twitchell Company would assure itself of satisfactory representatives. The firm would also be able to control its salesmen in the 204 PROBLEMS IN EXPORT SALES MANAGEMENT field and to hold them up to a proper standard of ser\ace that is to be rendered to its customers. Many foreign buyers prefer to deal direct with the manufacturing com- pany rather than through a third party, since they are often able to secure adjustments and straighten out mis- understandings with less trouble. Direct dealing also builds up friendship between the foreign buyer and man- ufacturer, which is frequently the basis for future business. By establishing its own salesforce, however, the Twitchell Company will reduce its profit on its foreign trade to less than half what it is realizing at the present time. Furthermore, the company will be able to establish its salesmen only in such cities as Buenos Aires, Eio do Janeiro, and Mexico City in Latin America; Milan, Paris, Brussels, Hamburg, and Copenhagen in Europe ; whereas, the commission house which is handling the company's product at the present time covers a greater number of cities in both South America and Europe as well as in the Orient. Would it be advisable for the Twitchell (\)ni])aiiy to establish its own foreign salesforce!* *Professor Hellauer, in liis Wdtshandelslehre, gives a careful analysis of the commercial organization in export and import trade. He classifies exporters as exporters in the wider sense and exporters in the narroAver sense. In the former he includes all those who undertake export trans- actions. In the latter lie includes those whose chief business is exporting. Houses whose chief l)usiness is exporting are called general exporters and they operate either on a commission or a merchant basis. The producer who wishes to export his wares may carry pn export business himself or through commission men or commissionaires ; that is, so- called "indirect export." The manufacturer appears to be better fitted than the agriculturist to carry on independent export operation, although even here direct export varies according to the markets in which export is carried on. Three groups of countries may be distinguished for this purpose. The first group includes several of the European countries where business transactions offer hardly greater difficulties tlian domestic trade'; these are the industrially developed west and central European countries. Manufacturers are accustomed to cultivate the industrial states of Europe direct. The second group is formed by the northeastern and southern Huropean countries, also the Levant and the U. S. A. Here manufac- turers often utilize direct methods, but side by side there are utilized to an important extent the services of export houses, even though there are differ- ences between markets. While German maiuifacturers operate on a direct basis in the northeastern European states — Norway, Sweden, Denmark, and Kussia and even in the United States to an important degree — Austrian 'It mu,st be remembered that this is from the German view-point. DISTRIBUTION POLICY 205 Problem 46 The Mills and Marks Company — Distribution Policy The Mills and Marks Company handles the output of several mills and markets cotton piece goods of various kinds including grey or unbleached cloths, bleached cloths inaniifacturers do this to a nmc-h smaller extent. On the other hand, the Levant trade is ■worked by Austrian manufafturers much more on a direct basis than by German. To the third group of countries belong those which might be called overseas. This is the domain of the export house. Only by those manufacturers who are able to bring about a large volume of sales in each overseas area can direct export be carried on, while other manufac- turers and those who can never expect to have a large sale must depend upon export houses. The rule is that the cultivation of oversea business is left to tlie exporter in tlie narrower sense. The manufacturers of the United States are in much the same position as European manufacturers in that in earlier times the export business was carried on chiefly indirectly through New York. Today, however, in all markets in which they have achieved larger important outlets they work direct. Only a large volume of sales permits the producer to establish an independent commercial organization to develop his export business ; on that account, medium and small manufacturers are very dependent upon the mediation of middlemen. In summarizing the ad- vantages and disadvantages of direct and indirect export, Professor Hellauer l)rings out the following: Advantages of Indirect Export : 1. The manufacturer is relieved of the work and care of the export operation. 2. The manufacturer needs less capital than to carry on direct busi- ness. 3. The risk for the manufacturer is less than in direct export. 4. The manufacturer may specialize in production, leaving export sale to export house. 5. The merchandising operations of the export house may be carried on more cheaply, intensively, with smaller risk and with greater enterprise than that of the manufacturer for several reasons. Branches and travelers may be maintained more cheaply and more efficiently than by the individual concern. They may extend their organif.ation because of combinations of sales of a number of arti- cles, and branches may be maintained in places where the sales of a single one would not permit them. Risks are scattered over a number of different products and markets. The Disadvantages of Indirect Export Mentioned by Hellauer Are as Follows : 1. Increase in the price of wares due to middlemen's profits or com- missions; therefore, the narrowing of the potential market or the decrease of the profit of the producer. 2. The lack of interest of the export house in any particular article. 3. The lack of specialized knowledge relating to any particular article. The advantages and disadvantages of direct export follow logically from what has been said about indirect export. 206 PROBLEMS IN EXPORT SALES MANAGEMENT such as muslins, naiusooks, and sliii^tings, printed cloths of various kinds, and colored cloths such as ginghams, velveteens, khakis, corduroys, and fustians. When an export department was organized in 1918, its attention was directed toward Porto Rico, Hawaii, and the Philippines because it has been urged that those markets offer special advantages in the way of a reduced tariff. The problem before the concern is twofold — first, to determine whether products manufactured by the house are of the kind required by these markets; and secondly, to determine how these markets should be reached in case the products are suitable. In a report which has been made by its special investigator, the following state- ments are made concerning the Philippine market: "In the calendar year 1916 the United States imported into the Philippine Islands cotton mannfactures valned at $6,192,002, nearly $2,000,000 less than the previous year but slightly more than in 1914. Cotton piece goods formed about four-fifths of the value of these imports in 1916 and 1914, and nearly seven- eighths in 1915. ''The most important competitor of the United States is the United Kingdom, whose exports of cloth to the Philippines amount to about one-tenth those of the LTnited States and cover the same general classes of cloth, though the strongest competi- tion is in bleached and dyed goods. China, Japan, Switzerland, Italy, Spain and Germany all have a share of the business. "A small amount of competition results from the presence of a cotton mill in Manila. It is operated by Englishmen and is controlled by an English importing house in Manila. In 1905, the latest year for which information regarding it is available, it had 70,000 spindles and 220 looms. The mill employs native help which, though unsatisfactory in many ways, is cheap and willing to work long hours when it is willing to work at all. The product of the looms is chiefly coarse white shirtings, with some convict stripes and some chambray. "The cotton cloths in greatest demand are white shirtings, white drills, betilles, or Swiss muslins, and prints. Probably the most impoi'tajit single item imported is white shirtings, which are used by tlu^ Jiatives for clothing, many men wearing no other kind of cloth. Not oidy are shirts, trousers and underwear made from it, but it is used for sheets, pillow-cases, and other household purposes. The heavily sized goods desired in many markets are not required here, and a large variety of constructions, widths, DISTRIBUTION POLICY 207 and lengths are to be found. The following table gives some indication of the character of the white shirtings sold in this market : Width (inches) 23i/> 24 31 34 34 341/2 35 35 35 351/2 36 . 36 77 "Other white goods of plain weave for which there is a con- siderable demand are nainsooks and lawns. The usual type of the former is 30 or 31 inches wide, of 108x96 construction, and 18 yards to the piece. Typical lawns are shown by the following table : Construction Lengtl (yards) 72x60 35 72x60 35 56x48 36 68x68 36 72x56 (40 varas) 36i/> 68x60 (40 varas) 361/" 72x56 36 80x80 (40 varas) 36i/. 68x60 (40 varas) 361/. 64x64 (40 varas) 36i/. 76x68 36 76x76 40 56x48 20 Width Construction Leng (inches) 29 60x56 10 varas 25 68x68 10 varas 24) Victoria 25) Lawns ) 92x92) 92x84) 80x72) (10 varas ( ( "Indian lawns of fine construction, 30 inches wide, and 24 yards long, are on the market. The finest, however, are the Persian lawns, 32 inches wide, and 24 yards long. The weights of the lawns vary from 10 yards to 16 yards to the pound. "White drills for men's suits are an important item of im- port, men in the cities (both native and foreign-born) wearing clothing of such goods the year 'round. The most popular drill is not the usual twill, but a satin weave. Cloths of different widths and lengths are found, though the regular width for such goods is 24 or 25 inches, the length 30 vards. Construc- tions vary from 96 by 80 to 140 by 80. "Khaki drills of the regular three-harness type are used by the army, and to a considerable extent by civilians for rough wear. Several kinds and grades are in use, the most usual being 28 inches wide and 30 yards long, of 68x52 construction and 208 PROBLEMS IN EXPORT SALES MANAGEMENT weifi'liing" 3.1 yards to the pound. Other cloths range in weight to as much as 1.6 yards to the pound, and in construction to as high as 92x56. "White cotton duck is used to considerable extent for men's clothing, the usual grade being 28 inches wide, 30 yards long, 7 ounces to the yard, and of i)6x72 construction. Coarser and heavier ducks are used for tents, awnings, and sails. "One of the largest items in the imports of cotton cloths is lietilles, originally entirely from Switzerland but now to a con- sidera])le extent from England. Betilles is a coarse muslin, with a certain amount of open work, and is used by the women for waists and scarves. A typical construction is 44x32. iSome of the betilles are printed, most of these coming from England, The regular betilles are 104 centimeters (about 41 inches) wide, by 5 varas (4% yards) long. They are never sold by the yard, but only in these small pieces. Since there is no clemand for such goods in this country, American mills do not make them. In entering the Philippine market, the X Company should de- termine whether one of its mills could not profitably make cloths of this type to compete with the English and Swiss betilles. "For many years the United States has been the principal source of supply for cotton prints for the Philippines. A great variety of kinds of cloth are printed, including T-cloths, shirt- ings, drills, lawns, muslins, cambrics, flannels, crepes, sateens, i-epps, lenos, calicos, and many others, some, such as T-cloths, not being made by the mills of this country. Printed shirtings prob- ably form the bulk of these imports. These cloths range from those 27.6 inches wide of 52x40 construction made in England to those 30 inches wide of 112x112 construction which come from France. A large variety of colors and patterns is to be seen, red and blue being perhaps the most popular colors. Tur- kej^ red shirtings, dyed in the piece, are very widely used by the P^ilipinos. A much-liked combination is a red shirt — which is not tucked in the trousers but is worn outside — with white trousers. The reverse of this is also worn. These cloths are usually 28 inches wide with an- average construction of 56x44. "Ginghams of various colors and patterns are largely used in the Philippine Islands for women's skii'ts and for men's trousers. Constructions vary from 52x44 to 76x64. Numerous Avidths ai'c sold, though the wider cloths are preferred. "Striped goods are used considerably for shirts, skirts, trous- ers, and upholstering. The 'sarong,' which is a loose fold of cloth worn by the women tucked in at the belt usually with one coi-nei" tucked up, is generally of striped patterns, though checks ai'e also used somewhat. "Numerous other cloths are imported to a greater or less ex- tent. Fancy woven goods, designed especially for women's DISTRIBUTION POLICY 209 waists, are imported to a moderate degree. There is also some demand for madras for men's shirts, ladies' skirts and waists, and for draperies. There is a fair market for crepe, 30-inch goods of 72x48 construction being fairly typical. The popular crepes are white, dyed in the piece or striped. Cotton trouser- ings, in a large variety of patterns and constructions from 64x56 to 84x76, are imported in considerable quantities. The cloths of this type in greatest demand are made on wide looms and are mostly plain woven, though there are some fancy weaves on the market. Moderate imports of cotton lastings and linings are received and fine cotton dress goods, such as tussores and repps, are on the market. These dress goods are made of mercerized yarn, to produce a lustrous corded effect, finer grades being- used for repps than for tussores. A small amount of velveteen and plush is imported, and a considerable quantity of cotton flannel. Of the latter the usual width is about 25 inches, with, constructions varying from 64x48 to 80x68. "A large part of the requirements of the Philippine market could be satisfied with cloths handled by the X Company. "Two classes of importers are to be found in the Philippines — (1) branches of trading concerns that import goods needed in the islands and export the products of the islands; and (2) con- cerns that merely import merchandise. Both classes sell to the retailers and bazaars. Most of the American business in the Philippines is done through houses of the first class, an ex- cellent example of which is Henry Peabody & Co. with its main office in New York. There are no native importers of importance ; most of the houses are American, English, German, or Spanish. Though Spanish is the language of the islands, English is taught in the schools and is of growing importance commercially. While it would be of advantage for a man doing business in the Philip- pines to be familiar with Spanish, it is not now necessary. "The X Company has a choice of three methods of securing business in the Philippines. (1) It may sell its goods to an American exporting concern with a branch in Manila. (2) It may establish a resident agent in the Philippines, who will sell to all the importers in the islands. (3) It may send out a sales- man from the United States once a year to call on the trade and take orders. "The third method is adopted by a number of European houses, not only with respect to their Philippine trade but also with that with other Asiatic countries such as India and the Dutch East Indies. If the business were obtained in this way, the same men could stop at Honolulu on the way and obtain as much business as possible there. There seems to me to be little, if any, advantage in this method, first, because a large proportion of the time is used up in traveling ; and second, because the rep- 210 PROBLEMS IN EXPORT SALES MANAGEMENT resentative is not on the ground most of the time and does not become so thoroughly acquainted with the trade and its needs as a resident agent could. "Since practically all the American business in textiles is done through export houses with branches in the Philippines, the simplest way for the X Company to market its goods would be by the first method ; i.e., through one of these exp'ort houses. Such a procedure would be similar to that followed by the com- pany in dealing with domestic jobbers, for the order would be taken in New York, though since the goods would be shipped direct to the Philippine branch, as much detail would be in- volved as in the case of goods shipped to foreign customers gen- erally. The usual American terms could be quoted and accepted by the main office in New York, if any advantage accrued to either the export house or the X Company by so doing. The chief advantage of this method of securing business lies in its simplicity and in the minimum of risk involved. As a means of ascertaining by test the amount of business that might be done, it seems an excellent plan. On the other hand, the usual objec- tions to developing a foreign market through an export commis- sion house apply here. Since the export houses are in reality importers into the Philippines and sell at wholesale to the Fili- pinos in the retail trade, uidess sales are made to several such export houses, the result is pi-^ctically the granting of exclusive territory to a buyer. The amount of business done is therefore limited to the amount which that one concern can handle. Even if all American export houses with branches in the Philippines were customers of the selling house, there would still remain a number of European concerns who might be induced to buy American cotton piece goods, if it were profitable for them to .do so, but who would not be likely to be reached if this method of securing business were used. "The second method suggested is to employ a resident agent to develop the trade in the islands. Such a man, with head- quarters at Manila, would be in constant touch with all the im- porters of textiles. He would be able to compare the cloths of the mills he represented with those of other countries, and to suggest methods of improving or of changing the products to better suit the needs of the trade. Occasional visits to the United States, in order to keep in touch with the maiuifacturing methods and to get a little of the atmosphere of the home office, would be desirable. Some $7,000,000 worth of cotton clotlis nn) imported into the Philippines every year. It does not seem too fanciful to assume that a live representative could secure one-tenth of that business for the X Company. "The Philippine importers sell to the retailers on 60 or 90 days' credit, charging no interest but making the price high DISTRIBUTION POLICY 211 enough to include all carrying charges. For themselves, they like enough time to enable them to see the goods before paying for them. As it takes about six weeks for a shipment to go from New York to Manila, 60 days from date of invoice would prob- ably be satisfactory-, or 2'/t 10 days on a 60 days' dating. "The International Banking Cor])oration, now controlled by the National City Bank of New Y^ork, has a branch in Manila, so that the difficulties of financing the trade with the Philippines are entirel.y obviated. A draft on a Philippine importer would be honored in New York with no delay at all. "The provision in the Philippine tariff, whereby American goods are admitted free, has been of greater assistance than any- thing else in the development of our cotton goods trade there." Problem 47 The Samuel Paper Company — Contracts with Export Houses The Samuel Paper Company has just received an olTer from the General Export Company to become its exclu- sive agent in the foreign field. Under the proposed con- tract all inquiries from or with respect to any foreign country shall be referred to the General Export Com- pany. No tonnage allotment is to be made to the Samuel Paper Company for the export field, it being understood that the said export company shall receive the same treatment that is accorded domestic wiiolesalers. The Samuel Paper Company must agree to pack and slii]> all foreign orders according to the specifications laid down by the General Export Company. The General Export C^ompany is a comparatively new organization, specializing in distributing writing paper, book paper, newsprint, and allied lines of supplies in the foreign field. This firm has been extremely active in expanding its organization and operates through manu- facturers' agents in South America, West Indies, Eng- land, India, and Australia. The company has had a rapid growth and is trying to tie up with a imniber of paper companies to insure a larger number of lines for its agents abroad. Most of the newsprint handled by this company comes from Canada. In summer this paper 212 PROBLEMS IN EXPORT SALES MANAGEMENT is exported directly from Canadian ports, but in mid- winter when these ports are closed to navigation it is transported in bond across the border into the United States and shipped out by way of Portland, Boston, or New York City. The company now has several contracts with paper-producing- firms on the same basis as the proposal made to the Samuel Paper Company. Inquiry among these firms discloses no unsatisfactory relations with the General Export Company, but all these contracts have been too recent to permit of a real analysis of the situation. The Samuel Paper Company operates a large paper mill, a sulphite mill, and a soda pulp mill, located in a New Kngland town of about 5,000 population. In addi- tion, it owns extensive stumpage rights in the northern part of Maine near the Canadian border. This firm man- ufactures medium-grade bond and writing paper and some book paper. A few of the better grades of the bond and writing papers are loft-dried, but the bulk of the writing and bond papers and all the book papers are machine-dried. The company does not use its own water- marks on its writing and bond papers and has used the marks of domestic wholesalers only under compulsion. The Samuel Paper Company is desirous of securing foreign trade in order to operate its factor^y more nearly at full capacity, reduce its costs, and sell its product to better advantage, thereby increasing its profits. In 1921 its mills were operating only 81% of the time and although that year was considered unusual almost every season witnesses occasional shutdowns. These shut- downs consume the company's profits. After the mills have been operating for a sufficiently long period to take care of the year's fixed charges, orders may suddenly fall off, and when the firm should be making the greater part of its profits, it is in reality losing money. In the domestic market the company sells f. o. b. mill to whole- salers who are given exclusive rights in their territory on condition that they carry no competing lines. In the foreign field the company has never granted an exclusive agency nor made any systematic attempt to obtain for- DISTRIBUTIOX POLICY 213 eign business, being content to secure business from whatever source presented itself. From time to time some foreign orders have been received through com- mission houses. The Gilbreadth Manufacturing Company, a competitor of the Samuel Paper Company, has given exclusive rights to an export house operating in South America. A written contract with this firm provides many of the same conditions that are contained in the proposal of the General Export Company. This agent, however, is one of the many new export companies that has grown up in this field the past few years and has tied up a numbei' of lines with contracts, not with the idea of pushing these lines but in order to prevent a competitor from getting them. The Gilbreadth Company manufactures writing and bond papers exclusively, using its own watermark. Through direct-by-mail circularizing in the foreign iield and advertising in trade papers and other magazines with a foreign circulation, tjie Gilbreadth Company has induced its agent to push the sale of its paper, but the amount spent by this firm for foreign advertising par- ticularly at the start has been out of proportion to its export sales. Another paper manufacturer giving an exclusive agency to an export house is the Larson Company, which manufactures high-grade book papers. This firm has a written agreement with its exclusive agent in the foreign field that the latter shall take a specified amount of paper each month, the price being fixed every three months for the next quarterly period. In this manner the Larson Company has avoided having its line tied up witJi an exporter Avho is acting as its exclusive agent but who is not interested in pushing its lines. In return for this concession the Larson Company has agreed to fill orders promptly, even giving priority over domestic shipments if necessary. It has also agreed to supply the export house with circulars, electrotypes, and other advertising data, but it does no direct advertising in the foreign field. Its contract was made under favorable export eon- 214 PROBLEMS IN EXPORT SALES MANAGEMENT ditions brought about by the war and it is doubtful whether, with German and other European competition, a reputable firm could be induced to undertake such a contract with the Samuel Paper CV)mpany at the present time. One of the best-known manufacturers of book paper in the United States is the Greenfield Company which adver- tises extensively in magazines with a national circulation. In foreign trade this company deals exclusively with an export house which has long had a reputation for the efficiency and ability of its organization operating throughout Latin America. No written contract exists between the two firms, each operating under a gentle- man's agreement that it will do everything reasonable to promote the interests of the other. The export house realizes that the Greenfield Company depends upon for- eign trade to help dispose of its product and unless satis- factory service is rendered, this company will be apt to open negotiations with another house. On the other hand the Greenfield Company gives this firm its lowest price concessions and furnishes prompt service, because it realizes that only by these steps can the export com- pany be induced to continue to push the sale of its product in preference to some other line. In advertising abroad the Greenfield Company spends a fixed percentage of its sales in the foreign field. As its sales increase the amount of money spent for advertising increases like- wise. This policy applies to the foreign field as a whole ; the amount of money spent for advertising in each coun- try does not necessarily depend upon the previous amount of sales in that country. The Hutchins Company has no exclusive agents among export houses. Many of the large export and commis- sion houses refuse to buy paper except at the lowest figure obtainable. Because of the fluctuations in the price of paper they are able frequently to secure a much lower price by purchasing in the open market than they would if they operated under a contract with a paper manufacturer. When these export houses receive an DISTRIBUTION POLICY 215 order from abroad for book or writing paper, they send out twenty to thirty hitters asking for bids on paper of the required specifications and usually give the order to the lowest bidder. This method does not enable the Hutchiiis Company to build up permanent customers abroad, but it does enable it to dispose of its product when the domestic market has slumped. Furthermore the paper company is able to sell large quantities of its product, provided the price is right. The Hutchins Com- pany does not do foreign advertising, although it does advertise to export and commission houses both directly by mail and through export trade papers. Should the Samuel Paper Company continue to sell to several commission houses or should it give one house its exclusive agency in the foreign field? If it is decided to grant an exclusive agency, should the offer of the Gen- eral Export Company be accepted? Should there be a written agreement between the Samuel Paper Company and its exclusive agent? If so, what should be the terms of this agreement? Should the Samuel Paper Company advertise in the foreign field? If so, what should be the duration of this advertising campaign? To what extent should the com- pany use direct-by-mail advertising? To what extent should the company advertise in trade papers circulating abroad? Should the Samuel Paper Company spend a definite percentage of its foreign sales on advertising, increasing this amount as sales increased, or should the advertising appropriation be based on the number of potential customers in each market regardless of past sales records? 216 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 48 The Rollins Paper Company — Contract for Foreign Distribution In tlie spring of 1919 the Rollins Paper Company received a proposal from the Giles Company to become its foreign representative. Previous to this time there had been some demand from South American firms for Rollins paper. This company had always been able to sell its entire production in the United States, but because of the favorable price offered by these foreign houses, it had given agency rights to a firm in Buenos Aires, and at the time this offer was made the Rollins Company was seriously considering the advisability of developing its foreign trade. After several conferences between representatives of the Rollins Paper Company and the Giles Company, the latter submitted the follow- ing contract as a statement of the conditions under which it was prepared to become the foreign representative of the paper company. 1. That the Rollins Standard Lines shall be promoted in for- eign markets exclusively through the Giles Company and their representatives with the exception of South America, where connections have already been made and other possible excep- tions as hereinafter noted, and that the Rollins Paper Company shall be relieved of the financial burden of exploiting the Rol- lins Lines in the foreign markets covered by this agreement, ex- cept in the case of advertising literature and material that could be made available for publicity work in such markets. 2. That all inquiries from, or with respect to, any foreign country other than those stated shall be referred to the Giles Company as the foreign sales department of Rollins Paper Com- pany. 3. That such inquiries shall be tliorouglily investigated by the Giles Company and all reports and records of such iuvestigations sliall he open to insjH'ctioii and analysis by Rollins l*aper Com- pany. 4. Rollins Paper Company reserves the privilege of acting in- dependently of the Giles (^ompany in connection with any par- DISTRIBUTION POLICY 217 ticular market ^\•hich iu its jiulmpany sell textiles to a limited extent in Europe and in China, India, and Australia, the deci- sion is concerned principally with Latin America. Originally the fiim adopted the policy of dealing with wholesalers and large consumers through agents, because it could not aiford to place a large enough salesforce in the field to cover the countries of Latin America. Although the company's financial condition and the "The agent abroad can be similarly classified: 1. The resident combination salesman. 2. The manufacturers ' representative. 3. The general importer. 4. The Avholesaler. 5. The wholesaler and retailer. 6. The retailer. 7. The consumer. "The second major division is based on the relation of the agent to the exporter. This division is one which contains but three classes: 1. Those who sell for the account of the exporter. 2. Those who buy from the exporter and resell. 3. Those Avho buy but do not resell. "It is obvious that each agent must be included in both of these major divisions. The export house in the United States supplies the most common example; for its residence is in the country of the seller and it buys from the exporter for purposes of re-sale outside the United States. It must be remembered that there is no agency relation, however, unless there are exclusive territorial rights involved. Otherwise the transaction is simply between buyer and seller. ' ' Professor Hellauer, in his JV elthandcJslehre in discussing import organi- zation in the importing country, therefore the buying organization for ex- porters located in other countries, divides importers into two groups : first, importers in the wider sense including foreign factories which import ma- terials and ecjuipment, wholesalers and retail dealers who import occasion- ally, foreign branches and branch factories, governments, and banks which sometimes act as consignees. In the importing of raw materials even large manufacturers do not always import direct, because of the very much greater risk connected with the import of raw materials, a risk which is minimized by the specialized importer who follows the markets at all times with ex- treme care. The second general class of importers are importers in the narrower sense including wholesale and some retail dealers who regularly import one or more lines of goods (these carry stocks) ; and secondly, gen- eral importers operating either upon a commission basis or upon a merchant basis, frequently receiving goods on consignment from exporters in other countries; importers of standardized raw materials sometimes act almost purely in the capacity of brokers. 226 PROBLEMS IN EXPORT SALES MANAGEMENT amount of its South American business has changed sufficiently to warrant the establishment of a salesforce, a number of considerations have induced the company to continue its old method. In the first place, by paying agents a fixed commission for goods sold, the company insures a definite selling expense percentage. In periods of depression such as occurred in 1920 and 1921 when the sales of the company fell oft", it was able to maintain the same number of representatives without increasing its percentage of expense. Transportation in South America is poor; railroad lines are short, usually running from a port on the seacoast to the largest inland towns only ; river and ocean transportation must be relied upon to a large extent; and it is difficult for a salesman to cover a large territory rapidly. Although a season may cover six months or longer, the actual period during which the dealers place their orders is comparatively short. Frequently the buying is put off as long as pos- sible in order to judge the demand for the coming season. It has consequently been of benefit to the company, in securing orders during the brief period when the buying season is at its height, to be represented on the ground at all times by agents. From another standpoint the company's reliance upon agents has not produced such satisfactory results. Diffi- culty has been experienced in inducing agents to push the sale of Baker-Greene & Company's textiles. Some of these Latin American representatives do not understand the ways of aggressive selling and frequently are content to follow old methods of letting orders seek the firm rather than having the firm seek the orders. Because of this the firm has been obliged to maintain a staff of travellers to visit these agents at least once in each sell- ing season, and this selling expense has therefore been greater than the percentage of commissions paid the agents. The direct sales policy of the largest competitor of Baker-Greene & Company overcomes some of these evils. American salesmen can be trained according to the com- pany's latest methods and policies, they are usually more DISTRIBUTION POLICY 227 inclined to try aggressive selling than native agents, and they are in closer touch with the conditions in the textile mills whose product the company sells. By dealing direct with customer's through its own salesmen the company may increase its cost of distribution, but it is getting better acquainted -wdth its customers and avoiding the dangers of misunderstanding which sometimes arise from dealing through a third party. Problem 52 Nichols Company — Branch vs. Foreign Wholesalers* In selling its filing cases, steel top tables, and other office equipment in foreign countries the Nichols Com- pany has dealt directly with manufacturers, merchants, and other business men through its own salesforce. In England a branch sales office and warehouse have been established to carry large stocks and facilitate shipments, inasmuch as office equipment is too expensive and too bulky a product to permit the average dealer to carry afull stock. Toother European countries and to Argentina, Bra- zil, Llexico, Cuba, Japan, and China all shipments have been made from the United States. The sales in all these countries have gradually increased and it is becoming- apparent that the company will soon find it desirable to have full stocks carried in each market. No steps have been taken in this respect, however, since the managers of the company are undecided whether they should fol- low the policy pursued in England and establish a branch, or whether large wholesalers should be utilized as exclusive distributing agencies. Since its entrance into foreign trade eight years ago, the Nichols Company has adhered strictly to a policy of not granting any ex- clusive agencies, primarily because of its desire to main- tain close contact with its customers and to study care- *For references upon branch organization and policy, see footnote to l^roblcm 109, 228 PROBLEMS IN EXPORT SALES MANAGEMENT • fully any tendencies toward changes in the styles and moclels of office equipment demanded in the various mar- kets in which it sells. Recently when the company received an oft'er from the firm of Perez y Orlega, located in Havana, to stock Nichols office equipment provided the company would give them the exclusive agency for the whole of Cuba, the question of adhering to their established policy was raised. This Cuban firm is well-established, and its per- sonnel has a reputation for honesty and ability. Its salesforce covers the island of Cuba selling furniture and similar products. It also carries a large stock of merchandise in its Havana warehouse. This firm is de- sirable in every way as a representative of the Nichols C'Ompany, should the latter decide not to establish its own branch in Cuba. As the sales organization of Perez y Orlega is made up of native salesmen who are thoroughly familiar with the territory they cover and the needs of their custom- ers, it should be possible for this firm to build up the sales of office equipment more rapidly than the Nichols Company, which at present has only two men operating in the territory. Moreover, because of the demand for longer credit terms on large orders sold to foreign con- sumers, the Nichols Company is not desirous of es- tablishing immediately a large warehouse and branch office in Havana. Should Perez y Orlega decide to drop the Nichols line to carry the office equipment of another manufacturer, the managers of the Nichols Company realize that their company would be handicapped considerably. By main- taining one of its owai salesmen in Cuba, however, to as- sist the salesmen of the agent in distributing the product, some of the drawbacks of granting an exclusive agency might be overcome. Should the Nichols Company accept the offer of the Perez v Orlega firm to become its exclusive agent in Cuba? DISTRIBUTION POLICY 229 Problem 53 Morrow Safety Razor Company' — Manufacturers' Representatives The distribution of the products of the Morrow Safety Razor Company in Argentina through an exclusive agent and in England through a subsidiary company had worked out satisfactorily and the company was attempt- ing to formulate a sales policy to apply to Asia. This company was established about 1900 and had been successful in the manufacture and distribution of a safety razor. The razor had been extensively adver- tised and was used widely in the United States, Europe, and Latin America. About 50% of the output of the fac- tory was sold to foreign customers — of the foreign sales about 75% were with Europe and 25% mth Latin Amer- ica; The company had always featured its distinctive trade-mark which had become known in all parts of the world. Li distributing its razors in Latin America the com- pany had always relied on exclusive agents. At the be- ginning of each year an estimate was made of the prob- able sales in each Latin American country and an allot- ment of razors was made to the exclusive agent. The agent was expected to dispose of the allotment mthin a reasonable time. Goods were sold to the agent gener- ally on 60 or 90 days' credit and there was never any difficulty in collection, the agents being well-established and reliable houses. In the distribution of the razors in the local Latin American markets the agents were al- lowed to follow their own methods — they could estab- lish local exclusive agencies, could use jobbers or retail- ers, or any method that in their judgment was adapted to the local market. Each agent, however, was required to maintain a fixed retail price in his market — for ex- ample, in 1921 the Morrow safety razor sold throughout Argentina for 4 pesos. The use of exclusive agents in Latin America, in the judgment of the compan;^^, was rendered absolutely 230 PROBLEMS IN EXPORT SALES MANAGEMENT necessary because of the physical nature of the country. South America is a country of long distances and a sparse population. Argentina, for example, is about one- third as large as the United States and has a popula- tion of about 9,000,000. Vast areas are uninhabited, and there are few large cities. It appeared to the company, therefore, that an exclusive agency was the best method of selling to such a territory because the agent could keep in close touch with local distributors. In England the company distributed through subsid- iary companies incorporated under the English law. This method Avas based upon the theory that merchan- dising conditions in England were very similar to those in the United States. Several years ago the company faced the necessity of formulating a sales policy for the Far East.* It was recognized that the conditions governing the methods of selling were very different from those in the other two markets. Population was dense in the Far East — China having a population of 400,000,000 and India 330,- 000,000. A great part of the population was massed in large cities — Calcutta having a population of more than a million, and Canton a population of 1,250,000. The civilization was the oldest in the world and the buying habits of the people were not easily changed. It was impossible to make a reliable estimate of possible sales because of the peculiar shaving habits of the people. The Chinese, for example, do not have heavy beards, and the people of India, while having more hair on the face than the Chinese, are very proud of their thick- flowing beards. The trade-mark, however, would make a strong appeal to the eastern people who were more attracted by pictures and symbols than by language or arguments. Another factor was the low i)urchasing power of the people. It was pointed out that no one exclusive agent could cover the whole of China or In- *Con8ult numerous publications of the Dept. of Commerce upon methodrj of doing business with China in connection with particular products. Cf. China; A Handbook by Juleao Arnoldj Commercial Attache at Peking, DISTRIBUTION POLICY 231 dia any more than he could cover Latin America. It was also pointed out that to establish a subsidiary corporation would require the creation of an organization as large as if not larger than the organization in the United States. This method would require a large immber of compe- tent salesmen whom it was very difficult to obtain in the Far Eastern territory. Some manufacturers had found it advisable to distribute their products in the Far East through manufacturers' representatives. Such repre- sentatives merely took orders which they turned over to the home company on a commission basis. They did not carry any stocks, nov did they have exclusive rights in the field, any foreign merchant being allowed to buy direct. By adopting this method the Morrow Company would ship direct to and collect from the buyer, relying, however, upon the guarantee by the manufacturer's representative of the credit of the buyer. It was also considered doubtful whether a retail price could be maintained in the market, the retailers being so nu- merous and small and conducting their business under conditions so different than those in the western world that it would have been impossible to exercise any con- trol over them. What type of distributing agency should have been adopted for the Far Eastern markets? Problem 54 The Murray Company — Use of Wholesalers as Agents; Wholesale and Retail Agents "Should wholesalers be allowed to i)urchase mer- chandise outright or should they ])e induced to act as agents?" This is the question facing the Murray Com- pany in the export of braids, ribboiLs, laces, and fancy dress trimmings to Latin America. The company originally intended to sell direct to manufacturers and retailers abroad through local agents. Where possible nianufacturers' agents were se- 232 PROBLEMS IN EXPORT SALES MANAGEMENT cured to represent the company, but the firm needed a larger volume of sales than this class of representa- tives could give. Frequently a large wholesale house was found to be the most desirable distributor in a dis- trict. The company therefore adopted whatever means of distribution would yield increased sales in that par- ticular locality, with the result that today in almost every country in Latin America the Murray Company has three types of distributors: one group of agents solicits orders, which are turned over to the company to be filled by shipments made directly to the customer; another group of agents carries stocks of goods, but in- forms the company of the names of their customers so that the firm's salesmen can assist the agent's sales- men in securing orders; the third type purchases the goods outright, refusing to inform the company of the names of any of its customers. From past experience the Murray Company has found that wholesalers are frequently not interested in pushing the sale of Murray goods or of featuring the Murray brand. "When a wholesaler buys his merchan- dise, the company has no idea of the customers to whom he sells. Often he buys on a price basis and is willing to shift his line at the persuasion of a -rival salesman or at the first opportunity to make larger profits. This practice of foreign importers and wholesale houses, be- cause of its constant recurrence, is causing the officials of the Murray Company serious alarm. When an agent can be induced to carry a stock of mer- chandise and at the same time to give the company the names of his customers so that its salesmen can assist him in disposing of the product, the most satisfactory results have been achieved. Such an agent is unwilling to change his line, for he realizes that the Murray Com- pany is in position to go directly to the trade to secure its sales if necessary. This firm has no intention of dealing with foreign customers except through the ser- vices of its agents. However, a number of foreign whole- salers who have heard of the methods of some American DISTRIBUTION POLICY 233 manufacturers are suspicious of any attempt on the part of the Murray Company to learn the identity of their customers, fearing it may be planning to discon- tinue the use of the middleman in foreign markets as others are doing in the domestic market. It is doubt- ful whether these wholesalers could be induced under any conditions to give the firm a list of the dealers to whom they sell the Murray products. The only appar- ent way in which the company could learn the identity of its customers would be to abandon distribution through most of these wholesalers and to secure new agents. Because of the hostility which would undoubt- edly be aroused, the company is averse to taking this step, yet without the use of the aggressive selling meth- ods of its own salesmen assisted by these wholesalers, the Murray Company cannot secure the highest returns from at least one-third of the foreign consumers of its product. Furthermore, it has developed that a number of agents of the Murray Company are operating retail stores either in connection with the central office of the company or at one or more points in the territory for which they have been granted exclusive agencies. As retailers these agents thus become competitors of other retailers in the district, to whom the Murray Company desires its goods to be sold. On the other hand, an ex- amination of the records of the Murray Company shows that some of the most aggressive agents are those who are also retailers, apparently signifying that while the market may be narrowed in the immediate vicinity of the wholesaler's retail store that inHuence does not ex- tend very far and the general ability and aggressive- ness of the wholesaler offset any detrimental influence. In other cases there seems good reason to believe that the wholesaler is paying more attention to his i-etail stores than to the distribution of products at wholesale to the retailers in his territory. The Murray Com- pany's salesmen have not infrequently reported that retailers in the territories of such agents hnve abso- 234 PROBLEMS IN EXPORT SALES MANAGEMENT lutely refused to handle the company's goods, because they felt that the agent as exclusive agent could pur- chase at a much lower price than they and they were not interested in purchasing goods from a competitor. Should the present agency policy of the Murray Com- pany be modified? Problem 55 Modern Oil Company — Question of Giving up Native Agents in China In selling lighting and fuel oil in China through local CJhinese agents the ]\Iodern Oil Company feels that it is not keeping in close touch with Chinese customs, buy- ing habits, and the demands of the trade, since com- petitors who have established their own branches and salesmen in the Chinese market appear to be securing the larger proportion of the business. Local Chinese agents frequently are content to sell oil in the old way, filling the orders that come in but not taking the trouble or pains to interest new customers in buying Modern oils or trying to increase their use through better sales- manship. The company adopted this method of distribution be- cause in the beginning its finances would not permit the building up of a large organization of American salesmen to represent it in China. Tt would have been extremely difficult, in fact, to find men with sufficient knowledge of the Chinese customs and language to per- mit them to go into the foreign field immediately and the company did not care to leave tlie market open to com- petitors until such time as it could have a force properly trained. By using Chinese agents the company has se- cured fairly widespread distributiori, but it is now in- terested in increasing its sales in the territory in which it is already represented. At present the company is in a position to devote to the development of this part of the foreign field a suf- DISTRIBUTION POLICY 235 ficiently large amount of capital to permit the training of at least a few men to take up the work of the Chinese agents. The new salesmen would need a training period of about a year or a year and a half before they could be sent out to the Far East on their own respon- sibiHty. Because of its lack of capital and the difficulty of securing enough capable men willing to undertake such a course, the company could not hope to secure and train enough men to supplant all its Chinese agents for several years to come. It has not been decided, therefore, whether the Modern Company should under- take to train a group of salesmen with the idea of grad- ually replacing its Chinese agents or whether it should use its capital in training travelers who would study and be in close touch with the market at all times and who would devote at least a part of their time to training native Chinese agents in the best methods of selling Mod- ern Company oils. Problem 56 Bennett Manufacturing Company — Exclusive Agency* The firm of Alvaredo & Lopez, a reputable and long- established wholesale house in Mendoza, Argentina, has recently offered to become the exclusive agency for the line of builders' hardware made by the Bennett Manu- facturing Company. Heretofore this wholesale house has been scattering its purchases but has bought approx- imately $25,000 worth of materials each year from the Bennett Company. This firm estimates that if it were granted an exclusive agency it would sell at least $200,- 000 worth of builders' hardware the first year, and could probably increase this amount in the future. In return for stocking this manufacturers' line the firm *See Miscellaneous Series No. 81, Chap. V, and the two following articles in The World's Marlets: August 1919, "How to Select an Exclusive Export Agent"; and Oct. 1919, "How to Secure Export Agents." 236 PROBLEMS IN EXPORT SALES MANAGEMENT of Alvaredo & Lopez asks that it ))(' allowed to have $25,- 000 worth of material on open account. The reputation of this Mendoza house is excellent. Its business is small, but growing rapidly and the pro- prietors are energetic and progressive. This firm has been importing merchandise from the United States for the past eight years and is well liked by the manufac- turers vdih whom it has dealt, as well as by the trade in Mendoza. In all probability it can sell the amount of builders' hardware which it estimates. The Bennett Manufacturing Company, located in New England, has an export business in the Argentine of some $600,000 each year. The business is secured mainly from firms located in the cities of Buenos Aires, Bahai Blanca, Rosario and Mendoza. At present about $120- 000 worth of business comes from the latter city. In carrying on its foreign trade the Bennett Company deals through its own salesforce or exclusive agents, whichever means appears to bring in the greatest amount of business. Although an increase in export business in Mendoza of $40,000 a year would probably result if an exclusive agency were granted the firm of Alvaredo & Lopez, there are a immber of disadvantages to be considered. In the first place, there are sixteen importers of build- ers' hardware in this city. If an exclusive agency is given to one of these wholesalers the ill-will of the other fifteen will be aroused and the Bennett Company might have a hard time increasing its sales in the face of the opposition. Furthermore, there is some danger of a wholesaler securing the exclusive agency of a line of builders' hardware for the purpose of preventing its increased sales by failing to give his best efforts to the distribution of this product and by keeping other whole- salers from doing so through his rights of exclusive agency. It would be difficult to compel such a wholesaler to push the line if he saw an opportunity to make more money through other manufacturers by keeping these goods on his shelves. DISTRIBUTION POLICY 237 Another point to be considered is the future deveh:)p- ment in this region. The business of the Bennett Com- pany in Mendoza has l)een increasing at about 11% a year and bids fair to continue this rate of growth. Al- though the annual sales of ^200,000 worth of merchan- dise would be a substantial increase over the present amount of Bennett Company goods sold in Mendoza, after a few years it is probable that more business would be secured through selling to a majority of the wholesalers in this city rather than to only one. But if an exclusive agency were granted for only a short period of time, it is doubtful if Alvaredo & Lopez would push the sale of Bennett Company goods. Should an exclusive agency be granted the firm of Al- varedo & Lopez? Problem 57 Hartman Piano Company — Securing Agency for Pianos ^he Hartman Piano Company, located in a New Eng- land manufacturing city, has a large domestic distribu- tion of its pianos, and in 1919, undertook the develop- ment of its foreign business. It sought the services of its New York bank in getting references of desirable agents in South American countries. The bank offered the ser\'ices of its branch in Rio de Janeiro to obtain an agent for the Hartman Company by personal solici- tation. In accordance with this offer the Hartman Com- pany sent its catalogs and price lists to the bank's branch manager, who began a systematic search for a desirable dealer for Hartman pianos. The Hartman Company owns and controls the Rex Piano Company, which produces a piano of grade equal to the Hartman. The catalogs and price lists for Rex pianos were also sent to the Brazilian branch of the bank.^ 238 PROBLEMS IN EXPORT SALES MANAGEMENT For several months the Hartman Company received no word from Eio de Janeiro as to the success of the bank's branch in securing an agent. In July, 1919, ]\Ir. Randolph, a relative of the presi- dent of the Hartman Company, planned a trip to sev- eral South American countries. The president felt dis- appointed at the absence of a report from the bank and asked his kinsman to look into the possibilities of the Brazilian market, and if possible, to secure an agent. The management of the Hartman Company did not no- tify the bank of this action. ) (On September 25 the Hartman Company received a cable from Mr. Randolph advising that he had arranged with Enrique Teixeira of Rio to represent the Hartman Company in the sale of Rex pianos. The cable con- tained an initial order for three pianos to be built ac- cording to regular standard pattern, without alteration in design,, and was confirmed by the follomng letter from Mr. Randolph: — * "An investigation of this market indicates a scarcity of pianos at the present time, but a desire for European makes in prefer- ence to American. After conferring' with a number of dealers I was able to persuade Mr. Teixeira to place an initial order for three Rex pianos to be built according to regular standard pat- tern, without alteration of design or finish. In my opinion a good business can be developed for these pianos in standard design. This first order is simply to convince Mr. Teixeira that he can market the pianos. He is in a position to dispose of a large num- ber of instrnments becanse he is one of the largest and strongest dealers in Brazil, and a very desirable agent. You will note that Mr. Teixeira has agreed to terms of 90 days sight draft with documents attached, although the terms nsually gi-anted by European firms are much more generous. I feel that the will- ingness of Mr. Teixeira to accept these terms is due more than anything else to an acquaintance that I sti-uck up with his rela- tives on the ship coming down. I hope therefore that you will be able to give this order your best attention." (The bank was notified of the receipt of the cable and was asked if anything had been heard from its Rio branch regarding the appointment of an agent. As nothing had been heard up to this time it was thought DISTRIBUTION POLICY 239 advisable to offer the Hartman Company an arrange- ment for financing the business with Mr. Teixeira. This relieved the disappointment of the piano company over the failure of the bank to obtain an agent. ) (On September 29 the New York bank received a letter from its branch in Rio, which was dated August 18. The following extract is taken from the letter : ) "In accordance with your instructions regarding the Hart- man Company, I have canvassed the field for pianos in Brazil and have found that there is a great scarcity of these musical in- struments at the present time, I have talked with a number of piano dealers with a view to placing the agency for Hartman pianos in this market. I have seen the firm of Valencia & Com- pany and had a long talk with the manager, but they were not interested in the agency. ' ' I have taken as next choice the firm of Joao Magalhaes. I had a long talk with Mr. jNIagalhaes, a gentleman who has been in this business for a good many years. He told me that he had already bought some American pianos, but that he had not the agency for any firm in the States. vThe American pianos, he said, are not as nicely finished as the French or German pianos?) He showed me some of the French pianos manufactured by Gaveau of Paris and these pianos really showed a better finish, especially on the outside. European manufacturers go so far as to cover the back of the piano with some expensive silks or satins. Mr. Magalhaes has been obliged to do this himself with the Ameri- can pianos he has received. (However, he feels that the quality of the Hartman and Rex pianos is good and is confident that they will find a ready sale in this market if certain changes in design were made. He has given me an order for seventy-five pianos, to be shipped at the rate of six to ten a month, on condi- tion that the company make alterations as indicated on the order, and ship the pianos with 180 days draft attached, renewable with the consent of our bank up to one year's time.] The pianos he selected for each monthly shipment are as f ollo^^'^ : 2 Rex, Model No. 43 3 Hartman, Model No. 47 3 Hartman "A" Grand, Model No. 56 \^He wants these pianos packed in zinc-lined cases, and he agrees to pay the extra charge that this will entaiUMr. Magalhaes has given me some catalogs of Pleyel and Gaveau, and in show- ing me these catalogs, as well as the European pianos them- 240 PROBLEMS IN EXPORT SALES MANAGEMENT selves, he emphasized the fact that the pianos made by Hartman are too flat to be attractive. He wants the upright piano to be modified so that the front board will have one or two panels, as sketched in the enclosed book. "Please bear in mind, and this is very important, that Mr. Magalhaes is in the habit of getting- drafts from European manu- facturers drawn up to 360 days, without interest ; or he receives a discount of 3%, for paying cash, all expenses of collections, stamps, etc., for the account of the manufacturer. The order sent by Mr. Magalhaes is enclosed in this letter. ' ' \Upon receipt of this letter the New York bank sent a copy to the Hartman Piano Company. What action should have been taken by the Hartman Company upon receipt of this letter from the bank? Should the Hartman Company have sought the Brazilian agent through two sources in this wayfl Problem 58 Rand Smith & Company — Granting Agencies Early in 1918, Rand Smith & Company, a large New- York wholesale cotton goods firm, received almost si- multaneously requests for agencies exclusive in that market from two dry goods merchants in Rio de Janei- ro, Jose Garcia & Company and Boucas Brothers. In the correspondence that developed both firms were able to demonstrate a wide acquaintance among the dry goods merchants of their country and an ability to mar- ket goods. Both washed to place initial orders for cus- tomers of about $15,000. Rand Smith & Company were desirous of establishing a good connection in Brazil. Prior to this time they had carried on an export business with that country but had been forced by war contracts to give it up tempo- rarily, and at that time lost their former agents. The company was now in a position to fill the orders sent by either one of the prospective agents. The management was desirous, however, of making a wise choice so as to secure an agent who would look out for their interests as well as those of the Brazilian merchants whom they DISTRIBUTION POLICY 241 were to represent. The company would be forced to de- pend more or less upon the recommendations of its agent in granting credit to any South American cus- tomers. References were sought concerning these two firms from the company's bank, which had a branch at Rio. The information submitted by the branch bank con- sisted of reports of investigations by its own credit de- partment and of reports by a commercitd credit agency. The information outlined below was given concerning Jose Garcia: "Trade Reports No. 1 — 'Very good firm from whom we buy.' No. 2 — 'Very good firm.' No. 3 — 'We have known him for a number of years as repre- sentative of North American manufacturers. Morally and financially well-regarded. Firm deals with us against de- livery of documents.' " "Bank Reports No. 1 — 'Old client of ours. Very active and hardworking. He has represented North American firms and believe his net worth to be some 1,000,000$000 (paper milreis). He owns real estate in this city, and we grant him a credit of 15.000$000 to 20,000$000 (Brazilian paper) in current account.' No. 2.— 'Capital 1,200,000$000 (Brazil paper). Credit 50,- 000$000 (Brazilian paper) in current account. Good moral standing. ' No. 3. — 'We understand he represented the American Cotton Goods Company, from whom he received $120,000 (gold) when he left them. We have no other details. He is not a client of ours. Five other local banks said that they did not know him as a credit seeker.' Comments : According to his signed statement of October 15, 1918, his net worth is some 1,800,000$000 (Brazilian paper), consisting mostly of real estate." Commercial Agency Report Dated January 15, 1918 : ' ' Jose Garcia is a Spaniard ; married ; some 44 years of age ; a resident of this country for many years, and in business since 242 PROBLEMS IN EXPORT SALES MANAGEMENT quite young. He has been a member of several concerns, the last being Mestre, Diez & Company, wholesale clothiers, in which he was a special partner, with an interest of 100,000$000. He re- tired from that firm at the beginning of 1916, his capital with profits amounting to 140,000$000 exclusive of interest. When he ceased to take an active part in the business he made a trip to the United States, where he secured a number of representa- tions, and for a time thereafter he exploited these in his own name until October, 1916, when he transferred his representation business to a subsidiary company organized by Morton & Com- pany of New York, a large financial firm, under contract extend- ing for 5 years from October 1, 1916. Garcia was named general director of the business in Brazil and his operations were made to extend to certain other South American countries. For one 3'ear Garcia represented this subsidiary, receiving a salary of $20,000 (gold) per annum, and one-third of the profits. In September, 1917, he resigned from the company and has since been working in his own name. "He is known as a buyer and is a seeker of credit accommo- dations. He has had long experience in this market, is very capable and is looked upon as a careful and shrewd merchant who gives his business alfairs his close and undivided attention, and the opinion is expressed that the interests of his principals will be properly cared for." Houses consulted in the United States at the time of this report said : "No. 1— 'He is our agent in Buenos Aires. We have the best of references about him ; he is a bright, experienced business man, who is in very good financial circumstances. Besides the dry goods line he also engages in other articles and is doing very well. While we do not extend credit to him, because he does not seek it, we recommend and consider him good for his engage- ments. ' "No. 2 — -'We do not sell this man, though he was at one time our salesman. ' "No. 3 — 'He was our agent in Rio until about two years ago, selling goods for us on commission. We charged nothing to him, and have no information as to liis financial res])onsibility and debt paying reputation.' "No. 4 — 'We severed all connections about a year ago.' "No. 5 — 'Our experience with this man was in the character of a selling agent, and as we were not quite satisfied with results ob- tained, we severed connection.' " Rand Smith & (yompaiiy soug-ht information concern- ing this man direct from American houses, whom he had represented and received the follo\\'ing replies: DISTRIBUTION POLICY 243 "No. 1 — 'The Americai] Cotton Goods Company — Garcia was our agent in Rio and while he was an excellent salesman and obtained a great deal of business, we do not think his dealings with us were entirely straight and we bought off his contract with us.' ''No. 2 — 'Garcia represented ns in South iVmerica and we con- sidered him a very able man, with some means. We had no actual proof but toward the last of our business relations so many suspicious circumstances arose that we terminated our relationship with him. While reiterating the fact that we had nothing tangible on which to base our opinion, it is our feeling that in the event of any castastrophe Mr. Garcia would never be the person to lose money. ' "No. 3— 'Mr. Garcia was our agent in Rio for several years prior to 1914. He demonstrated ability as a salesman, and on the whole our relations with him were favorable. We never ex- tended credit to him since he did not ask it. ' ' ' The braiicli bank reports upon the firm of Boucas Brothers are given below: "Trade Reports Business agents for Dry Goods. Nationality — Turkish. "No. l-'Capital 750,000$000 (Brazilian paper). In former times they used to buy from us. They have always treated us fairly and we have a good opinion of their moral character. ' "No. 2 — 'They did very little business with us, but we have good reports on them. Recently they received a consignment through us Avorth 40,000$000 (paper) against bills at five months, which they lifted punctually when due. They are very rich and have an excellent reputation. ' "No. 3 — 'Old clients to whom we have assigned credit of 10,- 000$000 (paper), but they usually discount their purchases. They are very reliable and hardworking, and we have a very good opinion of them.' "No. 4 — 'Clients of many years standing, and very good moral character. Pay well. We do not know their capital.' "No. 5— 'We used to allow them facilities up to 20,000$000 (pa- per), but they have not bought anything from us for a long time, sine? they have changed the nature of their business to become agents and importers.' " 244 PROBLEMS IN EXPORT SALES MANAGEMENT ' ' Bank Reports : ''No. 1 — 'They are said to be tricky and it is best to be cautious when dealing with them and arrange everything very clearly. They do not work with us. ' "No. 2— 'Capital as by balance sheet 30th of June, 750,000$000 (Brazilian paper). Credit 75,000^000 (Brazilian paper) single name and 50,000$000 (Brazilian paper) in current account. Good reports.' "No. 3— 'Capital as per deed of partnership— 500,000$000 (Bra- zilian paper). Fay punctually.' " The report of the commercial agency gave the fol- lowing information : Commercial Agency Report Dated December 10, 1917. "The partners composing this firm are brothers; some 31 to 36 years of age. The firm came into force on the first of Novem- ber, 1909, when they started at Rua Castanheira 93, prior to which they had both been working as peddlers. They had also a branch at one time at Sao Paulo, but this was liquidated in order to extend their Rio business. They are now operating un- der contract for a period of ten years, dating from January 1, 1916, with a stipulated capital of 300,000$000, contributed equal- ly by the partners, both having the use of the signature and dividing profits. They still own the property in Sao Paulo, for- merl}^ occupied by the branch which has been closed. In July last they claimed to have sold since January 1 — 1,200,000$000, largely as agents for Brazilian dealers, but investigations at that time showed that they were buying very heavily on their own account and in much larger quantities than before, but notwith- standing this they continued to pay satisfactorily." Rand Smith & Company were able to get reports from two North American firms with whom Boucas Brothers had formerly done business. A digest of their reports is given below: No. 1— The Northern States Cotton Company stated that up to 1916 they had done business with this concern, selling them in part on their account, whereas in most transactions Boucas Brothers acted simply as agents. For that merchandise which Boucas Brothers purchased for themselves they extended a 90 day credit. All payments wei'e made satisfactorily but the management felt that in certain cases where the South American firm had acted as agents, they had given better representation DISTRIBUTION POLICY 245 to their South American buyers than they had to the American manufacturer in cases where differences arose. No. 2 — The Connecticut Manufacturin.y- Company stated that up to 1914 they had sohl fair sized orders through Boucas Brothers, who were actini; as their accents in Rio. At the out- break of the European War several larg-e orders with the con- cern were cancelled without any explanation, nor could they get an answer from them. Their relations were broken at the time, nor had they had any dealings with them since. Which of these firms should Rand Smith & Com- pany have chosen as agent! What should have been included in the Brazilian agency contract! Problem 59 Mathews & Wolfe Company — Exclusive Agency AND Advertising * The Mathe\vs & AVolfe Company of Philadelphia car- ries on a large business in spices and extracts in the United States. In 1916, the firm sought to enlarge its sales b}^ exports to Latin American countries as well as to other foreign markets. In securing foreign agents in the various countries the management utilized the services of the foreign commercial department of a large New York bank. Samples and price lists were sent to foreign correspondents and branches of the bank, among them to the branch in Buenos Aires. On July 15, the New York bank received a cable from its Argentine representative stating that the agency for Mathews & Wolfe products had been offered to Jose Garate. After consulting with the American firm, the bank cabled to its representative to hold up granting *For infornuition upon the use of dealer lielps, see Vedder, American Methods in Foreign Trinle, Chap. XVII; ]\Iahony, The Export Salesman, (Business Training Corp.), Cliap. V; also Printers' Inlc, Feb. 26, 1920, p. 97 — "Horse Sense in Foreign Advertising"; and the following articles in 246 PROBLEMS IN EXPORT SALES MANAGEMENT an exclusive agency until further notice. Through the bank channels the prospective agent sent to Mathews & AYolfe the following letter which explains the trans- action up to that point: — "The foreign service department of the bank has had the kindness to submit ns your general lines of samples, catalog, and price list, of the articles manufactured by you, and at the same time asked us if we would be interested in the handling of said articles for the Argentine Republic. "After gathering the opinions of some of the importers and specialists of these articles, who are at the present time engaged in the sale of similar European articles, we believe it would prove of interest to you as well as ourselves, since we can see the possibility of placing large quantities of your products amongst our many commercial connections in this city and in the interior of the country, provided the terms you give us agree with our wishes and our point of view. "To this effect, and in order to clear up first these points, and also some doubts that we have regarding prices and supple- mentary conditions to be conceded to our purchasers, we have asked the commercial department to kindly transmit the follow- ing cable : — 'HAVE OFFERED THE AGENCY OF MATHEWS AND WOLFE TO JOSE GARATE CABLE IF AGREEABLE HAVE ALREADY SOLD ONE HUN- DRED SEVENTY CASES OF MUSTARD MORE ORDERS ON WAY CABLE IF SELLING ON APRIL PRICE LIST SATISFACTORY WILL YOU GRANT FIVE PER CENT COMMISSION ON SAME SEND SMALL CASE OP SAMPLES MUSTARD CANS CARTONS AND TUMBLERS TO SI^BMIT FOR GOVERNMENT ANALYSIS SEND A POWER OF ATTORNEY TO REGISTER TRADE-MARK GOOD PROSPECTS IN THIS MARKET' "By your reply, also received through the medium of the same department under date of August 17, stating i-esults : — 'BELIEVE MATHEWS & WOLFE AGREEABLE JOSE GARATE HANDLE GOODS ON FIVE PER CENT COMMISSION CLOSE NO EXCLUSIVE AGENCY NOW WILL PROTECT APRIL PRICES ON ALL SALES COMPLETED FUTURE ORDERS SUBJECT TO PRICES RULING DATE OF SHIP- MENT SENDING SAMPLES AND POWER OF ATTORNEY' DISTRIBUTION POLICY 247 "I see that you do not authorize as yet the New York bank to confirm to us the exclusive representation of your esteemed house for the Plate Republics, which is one of the prime condi- tions necessary and which we ask for in order to formally handle your business. "Our request to be your exclusive agents in the Argentine Republic is based on multiple reasons that are worth considera- tion. We might remind you that on our part we will have to battle with all kinds of difficulties in order to introduce into this market a new and unknown brand, which will have to compete with similar articles already well-known and of indis- pensable acceptance ; as for example, those of Ci'osse & Black- well, Morton, Coleman's, Savory, etc. "Such an effort on our part will demand an immense amount of work, with a consequent loss of time and expenses far from insignificant and of an uncertain amount, and all this we cannot undertake unless upon the basis of exclusive representation, which would also justify our insistency before our clients. "The first orders obtained, enclosed herewith, even though not very large, will serve to give you an idea of the results pos- sible for us to obtain, once that we know that our mediation in this business is clear and exact, and so that we may be able to rest easy as to the future. "For these and other reasons, we insist upon asking for the representation of your firm for the Argentine Republic, Uru- guay, and Paraguay, these last named countries bordering on our own, and where we are strongly represented, (connected) "Until we receive your reply in this respect, and feeling cer- tain that you will take favorable action upon our request, we have need in order not to lose time, to arrange the following matters : — ' ' 1st. The placing of your lines. 2nd. Take up in your name with our Goveriiment, the regis- tration of your trade-mark. 3rd. Obtain from the proper offices the chemical analysis of your products (mustard, and candied cherries) which is an indispensable condition for their introduction into the country. "As you can see by the foregoing, our system of working is: to sell for the account of the firms we represent to all the im- porting firms of edibles in the principal cities of our section, (Argentina, Buenos Aires, Rosario, Bahia Blanca, Cordoba, Mendoza, Tucuman, Uruguay, Montevideo, and Paraguay, Asuncion ) , with whom we are closely connected for many years ; 248 PROBLEMS IN EXPORT SALES MANAGEMENT the firms we represent sendiiifi' and invoicing their merchandise direct to the purchasers, regarding whom the bank in New York will furnish all information regarding their standing and re- sponsibility. "As a rule, or generally, sales are made payable by draft drawn at 60/90 days sight, terms conceded by tlie European firms and which assists greatly operations. "For our mediation the factories (firms?) grant us a com- mission that varies according to the article sold. In the case of your firm we have asked for 5%, which is the minimum paid for this line, but we trust that if it is possible that you will give us a little more, to encourage and compensate us a little for our efforts necessary for one or two years before the articles of your firm commence to be known in this market. "We have carefully examined your line of samples with some of our principal clients and for the moment we can say that the following articles will have the best sale : 1st. Mustard in glass jars, with the exception of "mug," as the weight of the package (container) makes it unsaleable. 2nd. Mustard in tins (in powder). "As regards the spices: In order to expedite the sale of these it will be necessary to adopt special containers, acceptable and current in this market. "For example: The pepper presented in cardboard boxes is unsaleable, it being necessary to put same in glass bottles, as that of Crosse & Black well, of which we are sending you (No. 1) one by the same parcel as the Yerba Mato, and naturally in order to distinguish same it would be necessary to make it a better look- ing bottle and of less weight, as the customs here collect duties on the gross weight of the merchandise, which serves to ele- vate very much their cost. "The spices must also come in small packages, packed 10 or 20 in pasteboard boxes, like those of Morton, sample of which we are also sending you (No. 2). "Your bottles No. 41 (referring only to the empty bottle) curry powder, are too thick, and therefore too heavy ; bottles are needed like those containing Crosse & Blackwell red pepper, of which we are sending you a sample (No. 3). "If you are willing to modify your different containers in accordance with the necessities of the market, we could also develop the sale of the spices, although we wish to say that their sale in small containers is not very large either as some firms, specialists in the line, receive such articles (pepper, cinnamon, DISTRIBUTION POLICY 249 candied cinnamon, nutnieji", cloves, etc.) at wholesale in sacks or bales, putting- it up themselves here. **One way to obtain a large sale in spices would be to sell same at wholesale. imi)ortin,L'' them in sacks and bales, but for this it would be necessary that they be Avell-placed since because of a Japanese line of steamers, the importers of our section, are able to obtain these diiferent lines direct from the places of production, Sino:apore and Ceylon. "We trust to hear from you regarding this matter, as we would be very interested in handling spices at wholesale, and hope if you are not in a i)osition to compete with direct compe- tition, that you will recommend us to such purveyors of your firm that might Avish to work your markets; and we thank you in advance for whatever you may be able to do in this direction. "ADVERTISING: We should like to have your information regarding advertising propaganda, because if you are disposed to do some, although on a small scale for the moment, it would contribute very much in placing your articles before the public. "In our opinion, our work and yours does not consist simply in selling to the wholesaler, but also in helping him to dispose of our lines, bringing it about so that the consumer will ask for same of the retailer, and the retailer in turn demand same from wholesaler, and the only way so far as we know to obtain this end is b}^ propaganda, and if you have advertising placards we would thank you to send same in a case, to be distributed among the clients placing an order. "ORDERS: Herewith we are pleased to hand 3'ou the fol- lowing orders as trial orders, accompanied by the corresponding information slips from the bank in New York, and we would thank you to kindly fill these orders as soon as possible and at best prices possible. If our friends are satisfied with the execu- tion of this, their first order, they will order again in larger quantities. "No. 500 from Messrs. Smith & Lee, Buenos Aires. "No. 501 from Messrs. Carlos Mitre & Co., Bahia Blanca. "PREPARED MUSTARD: Two clients who had given us quite important orders have cancelled same at the last moment as they find the mustard veiy liquid. Could you not send us an article that would be thicker? "In j'our catalog for the month of April there is no mention of the price of Jar No. 74, and we would thank you to give us same as soon as possible, and at the same time your discount and gratuities allowed to wholesalers. * * Awaiting your reply, we remain ' ' 250 PROBLEMS IN EXPORT SALES MANAGEMENT The branch bank sent favorable credit reports upon Jose Garate and upon the two firms whose orders were placed. In a letter sent to the home office the Argentina representative spoke as follows : — "Argentina is a peculiar market. We might say that the business part of the nation is Buenos Aires, and all other cen- ters in the Republic are intimately connected with the capital. That is the reason why subdivision of sales territory is not as successful in this market. Especially is this so in the spice business, whei'e the countrj^'s trade is in the habit of coming to Buenos Aires for its spices. "Although Jose Garate is not what you consider a large firm, (their capitalization is rather small), they deal with very good and reliable liouses in this market, such as those included in the order. "A question will naturally come to your mind and this is, why we have not selected for a representative one of the larger firms. In the first place, Jose Garate & Company have been strongly recommended to us, and secondly, because we under- stand that large firms are, as a rule, inclined to refuse exclusive agencies because in that way they are free to purchase in the open market at the most convenient prices." In the conference with the officers of Mathews & Wolfe Company, representatives of the New York bank ad- vised the company to meet the request of Jose Garate for advertising of the company's products in Argentina. At the time all the store placards and advertising ma- terial of the company were printed in English and were not, of course, suitable for the Spanish speaking coun- try. The management thought that inasmuch as they were selling the spices to the South American trade on a close margin, they w^ere not justified in making expen- ditures on advertising until the South American rep- resentatives had demonstrated ability to sell the goods. Accordingly, they wrote to Jose Garate & Company to this effect. In the United States, Mathews & Wolfe had the fixed policy of granting no exclusive agencies to wholesalers. The management felt inclined to pursue this same policy in its foreign business. It was thought that through DISTRIBUTION POLICY 251 open competition in foreign markets a wider distribu- tion would be gained. Should the management have granted an exclusive agency to Jose Garate for the territory asked by him! If so, what provisions should have been included in an agency contract in order to atford mutual protection'? Should the management have pursued a ditferent pol- icy with regard to the request of Jose Garate & Com- pany for advertising helps? Problem 60 KiLTON Typewriter Company — Essentials of Contract WITH Foreign Agency To insure uniformity in its legal relations with its foreign representatives the Kilton Typewriter Company has had drawn up an outline of the essential points to be embodied in all contracts between the company and its foreign agents.* This company exports typewriters to most of the important countries of Europe and Latin *Agency contracts are treated in Eder, Foreign and Home Law, (Business Training Corp.), Chap. VI; Hough, Praetical Exporting, page 291; Wyman, Direct Exporting, (Business Training Corp.), Chap. V; and Wolfe, Theory and Practice of International Commerce, Chaps. X-XIII; and in the follow- ing articles in periodicals : The World's Marlccis. Sept. 1919, p. 22— "The I-]xport Agency Contract." Mar. 1921, p. 32— "The Foreign Agency Contract." Export Trade and the Exporter's Eeview. Nov. 6, 1920, p. 11 — "Tlic Whys and Wherefores of Argentine Agency Contracts. ' ' July 9, 1921, p. 5— "Diatribntors' Contracts." July 16, 1921, p. 8 — "Exclusive Agency Contracts." July 23, 1921, p. 5—" Terms of Sales Contracts." Nov. 19, 1921, p. 5 — "Special Clauses in Export Contracts." Jan. 28, 1922, p. 14 — "The Legal Aspects of Foreign Agency Agree- ments. ' ' May 20, 1922, p. 1(5 — "Bonding Service as a Selling Argument." Commerce Eeports. Feb. 6, 1922, p. 333— " Agency Contracts in Foreign Trade." *In an article in World's INfarkets, Walter F. Wyman has enumerated the items in a typical well-drawn agency contract as follows: ( 1) Agent's official name and address. ( 2) Seller's official name and address. (3) Nature of relation and mutual obligations. (4) Territory and products. 252 PROBLEMS IN EXPORT SALES MANAGEMENT America, relying entirely upon exclusive agencies for the foreign distribution of its product. For a number of years the company's contract with each agent has been based on local conditions and has embodied those terms which the agent and the company's representa- tive considered to be most important. In a good many ( 5) Keserved rights of seller in described territory. ( G) Terms of contract. ( 7) Method and time of compensation of agent. ( 8) Protection of agent and compensntion on direct or indirect sales in his territory. ( 9) Prices, discounts, etc. (10) Terms of sale. (11) Conditions surrounding sales by agent for account of seller. (12) Provisions covering bankruptcy, etc. (13) Prices at which agent shall sell. (14) Granting or withholding right of agent to sell outside his own territory. (I.')) Eight of agent to sell or act as agent for competing products. (16) Allowances for advertising, samples, and selling expenses. (17) Eequired purchases or sales in each year of agency relation. (18) Definition of such purchases or sales and required relation (if any) between purchases by agent in comparison with sales to others. (19) Provisions relating to the possible failure of agent to reach pur- chase or sales total. (20) Statement of the right of seller to pass on and to limit credits on purchases and sales. (21) Cancellation clauses. (22) Rights and privileges of seller and agent at expiration of con- tract or at termination of contract equitably protected. (2.3) Repairs, damages, and claims defined and policy and practice portrayed. (24) Provision for disposition of stock at ending of contract. (25) Nonassignability of contract. Mr. Wyman suggests that the following points should be included in some contracts : 1. Establishment of service dc])ots. 2. Employment by agent of technical staff. 3. Maintenance of display rooms, warehouses or sales offices. 4. Carrying of parts or attachments. 5. Allowances for competitive products "traded in" or tnken in part payment by agent. 6 Value of stock to be carried by agent. 7. Sales assistance to be rendered by seller's representatives or other- wise. 8. Penalty clauses other than those relating to forfeiture of contrnct. 9. Arbitration of dis])utes by named third party or parties. 10. Authority of agent to act for seller. 11. Owiiership of trade-marks, copyriglits and patents. 12. Changes in customs and tariffs. 13. Changes in ocean or inland freight rates. 14. Changes in marine and war risk insurance rates. 15. Reports by agent of his sales in detail and of visits to prospective buyers and information obtained thereby. DISTRIBUTION POLICY 253 instances the contract has been more or less of a com- promise between the company and its agent. Because of the resulting lack of uniformity and the manner in which unscrupulous agents have endeavored to take ad- vantage of local laws and the interpretation of their contracts, the com.pany is contemplating embodying the following points in all contracts with its foreign agents : 1. Quota: A specified number of typewriters must be sold each year by the company's agent, this number being based on the general requirements of the market in which the agent has exclusive rights. 2. Price : The established resale price must be ad- hered to by each agent. 3. Territory : The territory of each agent must be clearly defined in order to avoid any possible confusion. 4. Branch or sub-agencies : The number of branch or sub-agencies allowed to be established by each agent must be determined at the time the contract is signed. As far as possible, population will be used as a basis for determining the number of sub-agencies. 5. Percentage of agent's discount: The percentage of discount allowed each agent shall vary with the length of time which the company has been selling ma- chines in his market and the type of competition that he must face. 16. Cost of cables, correspondence and oftice expenses. 17. Compensation of agent for mere acceptance of agency contract. 18. Local or temporary purcliases from other sources of supply by agent in event of seller being unable to supply his products. 19. Defrayment of agent's expenses on trips to seller and frecjuency of such trips. 20. Insurance on stock carried by agent. 21. Financial arrangements to protect seller in cases where consignment stock is carried. 22. Guaranteeing of payment bj' third party in event of agent's fail- ure to pay in accordance with contract or deposit of funds in escrow. 23. Right of agent to ai)point sub-agent and conditions under wliich sucli sub-agent sliall operate. 24. Division of excess profits when sales are made either by agent or seller at prices higher than mentioned in nuiin clauses of con- tract. 25. Payment of taxes, cost of complying with legislative enactments either in country of seller or of agent. 254 PROBLEMS IN EXPORT SALES MANAGEMENT 6. Fluctuation of price: A clause stating that all prices are subject to change without prior notice. At its discretion, the company is to allow adjustment. 7. Terms of payment: The exact terms to be al- lowed each agent must be carefully stated in order to avoid any jjossible financial arguments. Each agent should understand clearly whether he is to pay cash or to be allowed credit of 30, 60, or 90 days. 8. Guarantee : The company guarantees each type- writer against any defects and agrees to replace with- out charge any defective parts. 9. Insurance: All typewriters must be insured against breakage by the company in order to enable the dealer to secure damages for any machines not de- livered in good condition. 10. Services: Each dealer must agree to render service to customers in return for a reasonable compen- sation by the company. 11. Competing makes of typewriters: Each dealer must agree not to sell or advertise any typewriters of other makes than the Kilton machine. This clause ap- plies to second-hand as well as new machines. 12. Trade-marks : Each dealer agrees to waive all trade-marks, marks of word or symbol applied upon Kil- ton typewriters and will not directly or indirectly secure registration for the same in any country at any time. 13. Dealer's name: In order to assist the dealer in building up good-will for himself as well as the machine that he handles the company agrees to place the dealer's name on the front plate of each machine. 14. Assigning rights of contract: No dealer can as- sign his rights in this contract to another witliout the consent of the company. 15. Cancellation clause: The company shall have the right to withdraw the exclusive agency from any dealer who does not take the quota laid down in his contract. 16. Interpretation of contract : All questions aris- ing in regard to this contract shall be interpreted under the laws of the state of New York. DISTRIBUTION POLICY 255 The proposal to embody these terms in all contracts ^^•ith agents was submitted to the company's travelers in the foreign field for criticism and their reports raised the following objections: In some instances it is impossible to base the number of agencies or sub-agencies on the population since in many territories, particularly in South America, out of a population of 100,000, 99,000 may be negroes or half- breeds, the majority of whom are illiterate and practi- cally penniless. ^lany agents are apt to object to the clause that all prices are subject to fluctuation ^^ithout prior notice, since it leaves them in a poor bargaining position with the company. Again, the contract pro- vides that a dealer must agree not to sell or advertise any other makes of machines, either new or second- hand. Frequently, however, in order to make a sale it is necessary to take a second-hand machine of another make in trade. The only way in which this other make of machine can b3 disposed of at a profit is for the deal- er to repair it to the best of his ability and resell it to another customer. A restriction on the handling and advertising of machines made by other manufacturers is incompatible with the interests of the Kilton Com- pany. A responsible dealer who is a good business man knows perfectly well that, although he may be able to sell a large number of typewriters one year, he cannot always do so the next. Such a man will hesitate to sign a contract which would enable the company to terminate his dealership at will if he failed to take the arbitrary quota set forth in this contract. The final objection is with regard to the clause requir- ing that all questions arising out of this contract be in- terpreted according to the laws of the state of New York. A dealer in Brazil, Argentina, or Austria is not familiar with the laws of New York state and he ^^i\\ naturally interpret the contract according to the laws of his own country with which he is familiar. The executive committee, which drew up these terms to be embodied in the company's contract with its for- 266 PROBLEMS IN EXPORT SALES MANAGEMENT eigii agents, takes the g-romid that the company has a right to demand these terms, ])nt that in the interpreta- tion of the contract it shonki take into consideration local business conditions and the value of the agency to the company. If an efficient dealer takes a number of second-hand typewriters in trade, the company could give him permission to dispose of these other machines but at the same time he should be required to refrain from featuring or advertising these other makes to the detriment of the sale of Kilton machines. With regard to the cancellation of the agency, if the dealer fails to take the required quota the committee states that it intends this clause to be interpreted very elastically, depending upon local business conditions. It is thought that even if this, clause were not enforced in every case it would give the company a good sales "club" to hold over the dealer's head and prevent him from losing interest in Kilton typewriters. If the deal- er is efficient and a valuable representative for the com- pany, it can still permit him to retain his exclusive agency in spite of the fact that he failed to take his quo- ta, but the decision to allow such a dealer to retain the exclusive agency rests with the company. By this means contracts with unsatisfactory agents can be ter- minated easily. Although the committee which drew up these terms is firmly convinced of their value, the consensus of opin- ion of the company's foreign travelers is that, if the for- eign merchant lacks confidence in the good faith of the company, because of the terms of the proposed contract, not only will a number of agents be deterred from signing such a contract, but dealers who have ^signed such a contract will not be enthusiastic sales agents for Kilton machines when they feel that they are acting only under compulsion and that the company has taken an unfair advantage. The officials of the company are considering whether it would be advisable to adopt the terms as they stand or to substitute modifications along the lines of the suggestions made by the Kilton Com- pany's foreign travelers. DiSTRlRLTrON FOI.K'V 25t Problem 61 Houghton Cotton Mill — Exclusive Agency The Houghton Cotton Mill is attempting to regain its trade with China. About 1905 the Houghton Company sold a large quan- tity of grey sheetings in North China and Manchuria through an export house in New York which sold to any dealers in China who were willing to carry the line. The best seller was a 36 inch 48x48, 3 yard sheeting. This product was sold under the company's chop or brand which became well established and widely known. During the following years, however, American sheet- ings were almost driven from the market by Japanese competition. It appeared to the Houghton Cotton Mill that it would be difficult if not impossible to regain its trade in grey sheetings in North China and Manchuria. It seemed probable, however, that it might build up a trade in grey shirtings. These goods, which were sold in all parts of C^hina were supplied largely by England. Jap- anese firms had not begun to compete in this line to any appreciable extent. The Manchester Exporting Company is an English exporting house with a branch in New York. This company follows the usual English policy in selling cot- ton goods abroad; — first, its goods are distributed in China through an exclusive agency granted to a dealer in that market ; secondly, the goods are sold under the chop of the exclusive agent. As a result of many years of experience, the Man- chester Exporting Company has evolved the following- standard form of contract which it makes Avitli exclusive agents in China : — "Agreement made and entered into this day of 19 — , by and between (name of firm) a New York Corporation, of the first part, and hereinafter ealled the Employer, and the firm of (name of agent) of the second part, and hereinafter called the Agent : Witnesseth : The Employer hires and engages th€ 258 PROBLEMS IN EXPORT SALES MANAGEMENT agent to sell finished goods only which are dealt in hy it in state of (locality) and not elsewhere. "The Agent accepts the employment and agrees to devote exclusive time and ability to the Employer's interests during the term of this agreement, and further agrees that during the employment he (they) will not sell, deal, or be interested as principal or otherwise in any goods of the lines dealt in by the Employer. This agreement shall commence on the day of 19 — and may be terminated at any time by either party. "The Employer agrees to pay and the Agent agrees 1o accept as the sole compensation of the employment, a commission of per cent of the amount (selling price less Employer's fixed discount) on all goods personally sold bj' the agent in the terri- tory heretofore mentioned, provided, however, that no commis- sion shall be deemed earned until the goods shall have been paid for by the customer to whom the Agent shall have made the sale. "It is also agreed that all expenses, traveling, ofiice, or other- wise, incurred by the Agent shall be borne and paid for by the Agent, except necessary cable expnses, which shall be paid by the Employer. "It is further understood and agreed that the Employer reserves the right to decline to accept and reject any orders or to ship goods to fill the Agent's orders, and to accept goods objected to or refused by the Agent's customers, without liability for com- mission thereon, "It is, however, provided that the Agent shall liave no author- ity to make contracts in the name of the Employer or for the Employer and all orders shall be tentatively taken by the Agent for submission to the Employer for its actions (acceptance or rejection) at its Ncav York office, of which the employer shall be the sole and exclusive judge as to prices, terms, terms of credit, and other conditions which the Employer may impose. "On or about the 15th day of each and every month during the term of this agreement the Employer will render a state- ment to the Agent showing the net amount (selling price less Employer's fixed discount) of all goods shipped pursuant to the Agent's orders, the net amount of goods returned by the Agent's Customers, and the amount of commission earned upon goods paid for. At the time of the delivery of the statement referred to herein, the Employer agrees to pay the Agent the commission due on all goods paid for as aforesaid, deducting any advances made or commissions paid where goods have been refused or returned by the customers subsequent to payment of commissions by the Employer. DISTRIBUTION POLICY 259 ''It is further understood and agreed that the Agent shall not receive or be entitled to commissions on any goods sold direct by the employer to export commission houses in the United States or/and to persons, firms, corporations, or associations located in the territory hereinbefore mentioned. "It is further understood and agreed that the foregoing con- stitutes the sole agreement between the parties hereto, and no modification hereof shall be valid unless executed by the Employer under its corporate seal. "In Witness Whereof the parties hereto have hereunto set their hands and seal the day and year first above written. Signed Rider Number Two to Contract dated Between (firm) and (agent) "It is further agreed that the Agent shall receive commissions on all goods sold direct by the Employer to persons, firms, cor- porations or associations located in the territory heretofore mentioned, provided, however, that the Employer shall not be obliged to pay commissions to any other persons, firms, corpora- tions or associations for introducing the said customers." Upon inquiry at its banks the Houghton Company found that the Manchester Exporting Company had an excellent reputation and was considered financially very sound. Trade inquiries also resulted in eminently satisfactory reports. As a consequence, the problem has been narrowed down to the question of whether the company should sign such a contract, knowing that the house with which it is doing business is one with the highest rej^utation. 260 PROBLEMS IN EXPORT SALES MANAGEMENT Froblkm 62 Gardner Office Equipment Company — Completion of Contract with Foreign Agent The Gardner Office Equipment Company has had not a httle difficulty over contracts with its foreign agents. This firm distributes its office equipment in South Amer- ica through exclusive agents who are under a contract to carry a specified amount of stock on hand, to furnish a repair service, to carry no competing brands of office equipment, to spend a specified percentage of their to- tal sales in advertising Gardner products, and to build up a specified volume of sales in their territory. In sev- eral instances agents have broken their contracts by carrying competing lines or by accepting the exclusive agency for Gardner office equipment with the purpose of *' smothering the line" by failing to push its sale. When the company's representative has expostulated with the agent he generally has received an evasive an- swer and has been forced to resort to the local courts for assistance in enforcing the contract or securing dam- ages. The decisions of these foreign courts have usually been adverse to the Gardner Company. In the past, when the Gardner Company's represen- tative has selected an agent to distribute its product, a contract has been drawn up and signed on the spot by the agent and the representative of the company. It has been suggested that, in order to take the matter out of the hands of the local foreign courts, contracts should bear the clause that any disputed point between the two parties would be interpreted under the laws of the state of New York, To make sure that this clause is adhered to and that the New^ York courts have jurisdic- tion in such a case the contract should be signed by the foreign agent first and then returned to the Gardne)' Company's New York office for the signature of the company's officers. In this manner the company would insure the completion of the contract in the United States. DISTRIBUTION POLICY 261 This method of entering into a contract between the Gardner Company and its foreign agents would be sat- isfactory if the company were interested only in court decisions, but it has been pointed out that an exclusive agent Avho is interested in doing only what the court compels him to do is not apt to use aggressive methods in distributing the company's product and is usually an unsatisfactory representative. If the company would use greater care in inquiring into the character and abil- ity of its foreign agents before giving them the power to represent it, this difficulty might be remedied without unnecessary litigation. The Gardner Company would like to be advised as to which means to use in avoiding legal difficulties with its foreign agents. Problem 63 Caledonia Typewriter Company — The Appointment of Sub-Agents The Caledonia Typewriter Company is attempting lu increase the sales of its product both in Europe and in Latin America. Its present policy is to appoint as ex- clusive agent in each country one of the most progress- ive merchants in the business. This man is conversant with local conditions and far better informed on market possibilities than the average American salesman. Since it is impossible for one dealer to cover all the ter- ritory of a large country himself, he is allowed to ap- point sub-agents in the principal districts. Although many of these sub-agents are first-class merchants with a reputation for industry and ability, they are not as a rule familiar with American sales methods, and the sale of Caledonia typewriters in the foreign field is not so large as the company desires. Even the exclusive agents themselves are sometimes not sufficiently familiar with the most efficient and enterprising sales methods to enable them to increase their sales rapidly or to give their sub-agents proper instruction. 262 PROBLEMS IN EXPORT SALES MANAGEMENT The company maintains a traveler in each large country or group of countries whose duty is to be educate these agents and sub-agents in modern methods and to at- tempt to stimulate trade. These men have been serious- ly handicapped in their work, particularly with the sub- agents, because of the' fear of the exclusive agent for the entire country that the company is trying to work into the graces of the sub-agent and eventually deal with him direct. Whenever the company has tried to stimu- late sub-agents to greater sales efforts through corre- spondence from the home office the same difficulty has arisen and the exclusive agent, who thinks the company has ulterior motives in corresponding with his sub- agents, frequently becomes suspicious and loses all in- terest in cooperating with the company or pushing the sale of Caledonia machines. The Caledonia Company realizes that where indus- tries and resources are not developed to the extent that they are in the United States it must use greater leni- ency in passing judgment on sales results. The officials are aware that altogether too frequently there is a ten- dency to judge Russia, Austria, Brazil, and other Euro- pean and South American countries by the United States standard. They also realize that many com- panies attach more value to innnediate results than to a sound organization. They are not attempting there- fore to secure a sales boom in foreign lields such as might be possible in a domestic sales district, nor are they attempting to secure excessively large orders im- mediately. The company is desirous, however, of im- proving its business in the foreign field from year to year and it is not content to rely on old-fashioned for- eign tactics to secure this ideal. Too often the com- pany has found that its foreign agent calls upon a poten- tial customer only to be told that the customer does not care to purchase a Caledonia machine. Then instead of making an effort to convince the prospect of the de- sirability of buying this equipment and eventually secure a sale, the agent considers the matter closed, crosses^ DISTRIBUTION POLICY 263 the name of the prospect off his list. If he does de- cide to call again a couple of years later his visit is not to convince this merchant by sales argument that he needs a Caledonia machine, but merely to learn whether or not the prospect has changed his mind. One plan being considered as a possible method of stimulating sales is to have the exclusive agent receive letters from the president of the Caledonia Typewriter Company explaining to him how much the company ap- preciates his work and how it desires to continue his services. The letter would then explain that the com- pany officials realize that the agent is frequently over- worked in attempting to cover his territory and that the president wishes, by stimulating the sales of the sub-agents through correspondence, to assist him to se- cure greater sales and hence a greater profit for him- self. A copy of each letter written to the sub-agent is to be sent to the exclusive agent, so that the latter would have a complete knowledge of what the company is do- ing. In the same manner the company's traveler who calls on each sub-agent should try to do so as far as pos- sible in the presence of a representative of the exclusive agent, or at least inform the latter whenever he has made such a call, and what transpired. One of the chief obstacles to the successful working out of this plan is that most of the company's foreign agents have api)arently read of the American method of selling direct and have learned how manufacturing companies have frequently tried to eliminate the whole- saler or middleman. Tt is doubtful, therefore, if letters from the company's home office would quiet their sus- picions on this point; in fact, it is conceivable that these letters might be the cause of increasing their distrust. Since the agents appear to suspect the company no matter what its motives, another plan under contem- plation is to change the company's policy completely, do exactly what a large number of agents apparently expect anyway, and appoint all agents and sub-agents 264 PROBLEMS IN EXPORT SALES MANAGEMENT direct from the home office in New York. This policy would undoubtedly destroy the good-will of the com- pany's present representatives, but it would at least enable it to train its foreign sales agents in modern meth- ods and would enable it to hold the threat over the head of each agent and sub-agent that his agency would be revoked if his sales did not reach the desired quota. Should the company continue to allow agents to ap- point sub-agents! If so, how should it stimulate sales among sub-agents? Would it be advisable for the company to appoint all agents and sub-agents from its New York office! If so, how could it preserve the good-will of its present organ- ization! Would the company be able to use any addition- al sabs stimulation under this plan which it could not use at the present time ? CHAPTER VI EXPORT POLICIES— POLICIES RELATING TO PRICES AND TERMS OF SALE PRICE policies present some of the most perplexing- problems which exporters have had to face dur- ing the past few years. Every exporter knows that export business is undesirable unless he can in the long run secure prices which will be profitable. If he is an economist, he also knows that price is the result of a series of influences over many of which he has no con- trol. Price as used in the economic sense contains two ele- ments— first, it represents value of one commodity in relation to other commodities ; and secondly, that value is expressed in terms of money. The unusual situations prevailing in the past eight years have changed the val- ues of many commodities both in terms of other commod- ities and in terms of the monetary units according to which values were expressed. The disturbance of pro- duction and the great increase in demand for certain types of products as a result of the war conditions are partly responsible for this condition. Much more per- plexing, however, are the complications brought about by the monetary situation throughout the world. Na- tion after nation has gone over to a paper money basis. Depreciation of currency has taken place, a depreciation which is without a parallel in monetary history. Coupled with the scarcity of gold in many countries and prac- tical embargoes on its shipment, gold has been re- moved from practical operation as the international basis of exchanges. International trade balances have been changed by war conditions. Creditor nations have 365 266 PROBLEMS IN EXPORT SALES MANAGEMENT become debtor nations, and debtor nations have become creditor nations. As a consequence, exchange rates have fluctuated violently, the fluctuations covering a range which before the war would have been regarded as impossible. To carry on business, to quote prices, and to get payment for goods under such conditions present problems of extreme difficulty for the export house and the exporting manufacturer. The exporter in quoting prices for foreign trade has this subconsciously in mind; but if he abstracts the dis- turbing influences of political and exchange conditions in international trade, he will And that the problems to be decided in regard to prices are the same as in domes- tic trade. The manufacturer must fix prices upon his goods within the limits imposed by economic conditions. For staples, for goods in which there is competition, he must take account of the price levels prevailing in the market. Perhaps even more generally than in the do- mestic market for manufactured products will prevailing- market prices determine what can be secured by the manufacturer for his goods in foreign transactions. Many manufacturers endeavor by giving service, by identifying products, and by selling trade-marked and patented articles to create a demand for their j^roducts at even higher than competitors' prices. Manufacturers may adopt with some degree of success the market plus policy; i. e., selling at more than the market price, in part by creating through advertising or otherwise the impression of greater desirability. Such a policy is fol- lowed by numerous manufacturers in foreign trade as well as in domestic trade, but is not so frequently carried out as in the domestic market because of the lack of ad- vertising facilities and the very much greater percent- age of illiteracy in cei'tain foreign countries. In international trade goods are not infrequently sold at a price less than the prevailing domestic market. Two types of cases may be distinguished — first, those in Avhicli lower than domestic market prices, even at prices involving a loss, are quoted in order to break into a mar- PRICE POLICY 267 ket in competition with similar goods which are at pres- ent in possession of the market. This practice is said to have been carried on very frequently by the Germans and is one which it is expected mig'ht be carried out by our export combinations in order to penetrate foreign markets. A second set of cases includes those concerns which consistently exjiort a part of their production at lower than domestic prices either in order to keep up prices in the domestic market or to dispose of occasional surpluses in the foreign market. The third set of con- ditions includes those in which the American exporter quotes lower than competitors' prices because of the greater efficiency of his organization in manufacture and distribution. It is this last type of organization which can secure and maintain a hold upon foreign markets from which it cannot be dislodged by foreign competi- tors. A. Determixixg the Price Level . How should fzoods be priced — at, above, or below domestic market prices.' At, above, or I)elow prices prevaiHng in world mark(^ts .' B. Quotation of Prices to Include Delivery Charges. Should prices be quoted f . o. b., c. i. f., or a variation of the latter? How should the policy vary with the individual markets ? Why is the policy lowaivl pi-ice (piotations of particular im- portance in export trade.' C. Quotation of Prices in Dollars verst's Quotation in For- eign Currencies . Under what conditions sliould the exporter quote prices in foreign currencies ? If prices are quoted in foi-eign currencies, what steps may the exporter take in oi-de)- to avoid loss through fluctuation's in exchange rates .' What are the ad\autages of quotation in foreign currency? '26S PROBLEMS IN EXPORT SALES MANAGEMENT D. Uniformity of Sellino Price. Should sellin 270 PROBLEMS IN EXPORT SALES MANAGEMENT was compelled to allow as large a margin for retailers as the other companies and the company was at no dis- tinct advantage in regard to costs in so far as these were represented by labor, machinery, and raw mate- rials, although the company had enjoyed good manage- ment. The president of the company, in deciding upon the radical change of policy in regard to domestic agencies, believed that through manufacturers' retail outlets it would be possible to sell more cheaply and if this benefit were passed on to the public, the increased demand would augment sales so as to cut down costs and give the company a reasonable profit. As a conse- quence, the policy definitely adopted was that of quoting a uniform price in all its stores and exclusive agencies, such prices on the different shoes varying from 50c to $2.50 per pair below those on similar shoes of retailers handling other brands. In establishing stores in London and Paris, in accord- ance with plans made several years ago, should this price policy be applied? If the same retail prices are quoted or prices that are very close to the domestic prices, they will be insufficient to allow the ordinary re- tailer an attractive margin of profit. Furthermore, the adoption of such a price policy may cause complications with the exclusive agencies in other countries. The question has arisen as to whether the foreign market should not be treated as a market by itself, irrespective of the domestic market, and the old policy of quoting about on a parity with prices of other manufacturers be continued. Problem 65 Chandler Company — Price Competition As a convenience to their Argentine customers the Chandler Company, as well as other American manufac- turers, of screws, bolts and nuts, follows the trade cus- tom of quoting prices for the Argentine market in PRICE POLICY 271 francs. Before the World War, when rates of exchange were stable, there was no difficulty in using the French price list, but when rates of exchange began to fluctuate the company found that the quotations of its product might be materially changed over night and the changes in price lists could not be made rapidly enough to keep up with the change in the value of the franc. Not wishing to assume the risk of violent fluctuations in exchange rates, although continuing to follow its policy of quot- ing its prices in francs, the Chandler Company put a pro- visional clause in its price list that the franc prices were to be accepted only at the par value of the franc; that is, at 19.3c. By establishing a definite value for the franc the Chandler Company was in effect quoting prices in dollars and cents while still using the French list. Prior to the war the Franklin Company, a competitor of the Chandler Company, spent a large amount of money in developing the Argentine market, establishing its own salesforce, and aggressively pushing its sales. When the United States entered the war in 1917, the Franklin Company abandoned the Argentine market temporarily in order to take care of the greatly increased home de- mand. On the other hand, the Chandler Company not only filled its government contracts and the demands of its customers in the United States, but also exported sub- stantial quantities of bolts to Argentina. The buyers in the South American countries, cut off by the war from British, French, German and Belgian sources of sup- ply, consequently placed large orders with the Chandler Company. In the two years immediately follo^\ing the signing of the armistice the Chandler Company contin- ued to develop this market and supplied over 507o of the bolts being shipped from the United States to the River Plate region. Deliveries were prompt, selling prices sat- isfactory, and the firm was adequately represented by a strong sales organization. With the falling oft' in domestic demand in the fall of 1920, the Franklin Company again found itself in a po- sition to export its product, but it had lost its hold upon 272 PROBLEMS IN EXPORT SALES MANAGEMENT the Argentine market. This corporation decided, there- fore, to attempt to regain its former position in the River Plate region by cutting the price on its product in order to undersell its rivals. The method adopted was to quote the same price in francs as that quoted by the other companies, but instead of requiring the francs to be converted at par the Franklin Compan}' allowed the conversion to be made at the current rate of exchange in Paris. By adopting such tactics the company was ac- tually selling its product at a loss, but it hoped to re- cover at least a part of this loss by holding francs in- stead of American dollars with the expectation that the rate of exchange would imi)r()ve and the value of the franc would increase. Later, in order partially to otfset the heavy loss, the Fi-anklin Company quoted its prices with a 25% pre- mium, whereas the Chandler Company quoted a 15% dis- count. As shown by the following example, if the cur- rent value of the franc were .071 the Franklin Company would be selling its bolts at approximately half the price charged by the Chandler Company. Chandler Company Franklin Company 100 franes:=]ist price quoted .100 franes=]ist price quoted lo franc S3: 15% discount 25 francs=2;j9c premium 85 francs = actual price quoted. 125 francs=r:actual price quoted .193 par exchange. .071 current exchange rate $16,405 $8,875 value in United States currency It is evident that this price policy of the Franklin Company has been adopted in order to drive the other American firms out of the Argentine market, since these price reductions are not necessary in order to compete with the products of German, Fnglish, and Belgian firms. Its large reserve, built up during tlie war, will probably enable it to carry on such competition for a considerable period. One of the pro])osed methods of mcH'ting this competi- tion under consideration b.y the Chandler Company is to fix an arbitrary rate of 15c, instead of 19.3c, for con- verting francs into American cun-ency. By confining or- PRICE POLICY 273 ders as far as possible to the sizes on which there is the greatest profit it is expected that under this plan the company ,nll be able to meet the competition of its ri! ti «"";?■', 'ty'^^e at first might be slightly higher than that ot the Franklin Company, as the rate of ex- change advanced nearer to par the prices of the t.vo the Chandler Company would probably begin to take away business from its competitor Another proposal is to do away with the old custom of quoting pnees m francs and instead to quote then American dollars. This would relieve the companv of much ot the bother of considering exchange Zl\t del Ins scheme the company would establish a price which would cover all expenses, altliough it mioh not show a profit. On this basis the salesme!, of tl le C a d he ^:r "°;-" '" '"*" "'« ^■°-'«-^ niarkrt w 1 1 the Idea ot meeting reasonable price competition and of .miphasizing. the superior qualitv of the product ^ the Chandler Company. ' pioauct ot The thii-d plan under consideration is to withdraw from the Argentine market entirelv. South American buyers require metric lengths and diameters 4Tch dff mirke?" ' ''"''T'^ "'^'^ '^''' '-^^ '" t he lo nesti^' maiket; consequently, machines must be changed in o ■ del to manufacture goods for export and the cost of production is therefore slightly higher than tlia of goods manufactured for the American maXt This itelirff ?""/'" ^'"''"'"^'' Compnii, .tllld d ! ote all Its eftoi- and resources to developing the domes ic market winch is free from German c^mrx^tUion to a g.eaer extent than are the markets of South Am rila p-,m wirre'-' T^'•^' r'^P*-''' ^y «'« Chandler Oom- p.^n^ ivith regard to its Argentine market' 271 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 66 Guild Company — Adjustments The Guild Company has recently received letters from several of its South American customers with refusals to accept the goods unless the selling price was reduced 50%. It was claimed that competitors had bought cheaper merchandise from other hrms; consequently Guild Company's goods could not be sold unless invoice prices were greatly reduced. One of the customers, Mr. Fer- nandez, a retail dealer in Chile, located about two-hun- dred kilometers from Valparaiso, ordered $632 worth of merchandise at regular prices quoted in American dol- lars, f. 0. b. mill. The shipment has now arrived in his city but he has notified the company that he mil neither pay for the goods nor the freight charges on them un- less the company makes him an allowance of 50%. The Guild Company manufactures an assortment of colored crepe jDaper, the annual production of which amounts to $9,000,000. It exports approximately one- eighth of this amount, but only $200,000 worth goes to South America. The company has not established its own warehouses, since the sales volume of its product in this market is insufficient to warrant such a step. It is distributing its merchandise directly through its sales- men, who call upon customers about once every sixmonths. The salesman therefore has but little opportunity to assist the dealer in selling his crepe paper after the ship- ment has arrived, neither has he an opportunity to in- vestigate claims for adjustment and statements of cut- price competition. The customers who have asked the company to reduce its price after the goods have arrived are usually located away from the big ports and centers where the ship- ments cannot be diverted to other customers. They have never handled the company's product before, and their initial orders, covering their requirements for full stocks, are therefore comparatively large, usually being for $500, $600 or $700 worth of merchandise. It is appar- PRICE POLICY 275 eiit that most of these customers are trying to take ad- vantage of the fact that the Guild Company is several thousand miles away and has no representative on the ground to look after its interests. An investigation of one or two cases has shown that no such competition ex- ists as has been claimed. These customers evidently be- lieve that rather than pay the freight both ways, as well as high warehouse charges, the company will accede to their demands. In securing these orders the company has already had to pay high salaries and heavy expenses to its sales- men and has frequently gone to some additional expense and trouble in order to furnish the sizes required. This business already yields no profit, and if the company allows the reductions asked it must stand an absolute loss of 50% on each order. The merchants thus favored, how- ever, would undoubtedly push the sale of these goods be- cause of the large profit they would make. If the merchan- dise were once introduced to these dealers' customers the quality of Guild Company goods is such that a future demand is almost sure to be created. When the sales- man calls on these dealers in a few months for repeat orders, he will be in position to demand some adjustment on the first shipment and the company may recover at least a part of its loss. The Guild Company has always maintained a stiff col- lection policy. To grant such unreasonable requests would encourage other customers to make unwarranted demands in the future. Although the salesmen have re- ported these dealers as the largest and most prosper- ous in the towns in which they are located, there is some question as to whether the company would care to have its goods handled by merchants who employ such ques- tionable buying tactics. If the requests are turned down, however, it is almost certain that these merchants will refuse to handle Guild Company's merchandise in the future and may even try to discourage others from buying its goods. At a time when the company is making special efforts to extend the 276 PROBLEMS IN EXPORT SALES MANAGEMENT use of its product in South America, it would be inad- visable to create enemies. Since the price was quoted f, o. b. mill, the company must go to the added expense cf paying the freight to South America, It must also either pay return freight, or the high Avarehouse charges for storing the merchandise in the hope that some day another customer can be found. Whether the merchan- dise is stored or returned, it is not being sold to the trade and future demand is not being created. What action should the Guild Company take with re- gard to the requests of these South American customers! Problem 67 The Wolfe Company — F. 0. B. versls C. I. ¥.* The question of the method to be used in quoting prices has arisen in connection with the plan of the Wolfe Company to increase its export trade in textile machine accessories and supplies. At present the com- pany distributes its product in the foreign field mainly through agents who are given definite territories to cov- er, but in the new territories the company is beginning *For gener.'il descTi[)tiuii and discussion of export practice and price quotation, cf. the nianunl of export terms published by the National For- eign Trade Council in collaboration with various other associations, portions of which are quoted below. Discussions of practices in particular trades are to be found in Sonnendorfer-Ottel, Tcchnik des WeUhandel, Volume II; and in other manuals of continental origin. Ilellauer, in discussion of prices on pages 332 et seq. of his W eltJiandelslehrc, which Wolfe follows very closely (Chap. XII of his Theory and Practice of International Trade) discusses price quotations with the following headings: "A. The meaning of price. B. The quotation. (a) Meaning of quotation. (b) Price basis and allowances relating to the quality and quantity of goods. (c) The i)r)ce denomination. (d) Tlie time basis of price calculation. (e) Discounts and rebates. (f) The costs of trnnsjiortation, insurance, and incidentals as ele- ments of the quotation. (g) Cash terms, (h) Credit terms." PRICE POLICY 277 to deal direct Avitli eacli mill owner through the com- pany's own salesmen. The price to the agents has al- ways been quoted f. o. b. steamer, New York. Not a few of the company's agents prefer this method because it gives them the opportunity to handle all papers and doc- uments in their own way or to delegate this work to friends. In any case the agent is familiar with importing merchandise into his native country and it is compara- tively easy for him to sit down and figure out the amount the goods will cost him delivered at his own warehouse. In dealing Avith mill owners, however, there is consider- Tlie following items and charges should be taken into consideration in calculating prices, according to The Technique of Foreign Trade (anony- mous) : "(1) Buying expenses. Commission and brokerage to intermediaries, etc. (2) Keeping and handling expenses. Storage, fire insurance, sampling, testing, conditioning, sorting, repairs, packing, etc. (3) Forwarding expenses. Delivery, carriage by land or water or both, dock and river dues, consulage, wharfage, insurance during transit, etc. (4) Fiscal and other dues. Customs duties, consumjition taxes, etc. (5) Financial items incidental to reimbursements. Loss on exchange, bill brokerage, bank commissions, etc. (6) Selling expenses. Factorage and brokerage to intermediaries, discount for cash, etc. (7) Customary allowances for tare, draft, breakage, leakage, deteriora- tion, wastage, shortage, damage, etc. (8) Miscellaneous items. Traveling expenses, advertising, cablegrams, petties, etc. (9) Interest on invested capital for time being. (10) Contribution to general expenses, known as 'office overhead.' (11) Allowance for contingencies and unforeseen expenses. (12) Selling risk, when goods are to be sold on credit or for future delivery or both. The calculator of riuotations for export must be thoroughly posted on the following jioints : (1) The meaning of his buying price. (2) The way in wliicdi his customer wants him to quote. (3) The intervening items and expenses. (4) The points by wliich iirices jiroceed, botli at home and abroad; i.e., the difference between a given i)rice and the next higher or lower one. (^) The extent to wliicli goods may be affected in their volume, weight, quality or condition during transportation or while in storage. (6) The degree of correctness needed in his conversion factors in case the required quotation is for foreign measure." 278 PROBLEMS IN EXPORT SALES MANAGEMENT a.ble question as to wlu'tlicr prices should still be quoted f. o. b. or e. i. f. Most of the AVolt'e Company's salesmen favor quoting all prices c. i. f. A la rye number of mill owners in foreign countries liave had but little exi)erience in importing and consequently they are not familiar with the custom duties, freight rates, and insurance rates. It is difficult there- fore, if not impossible, for such customers to take the f. o. b. quotation given them by the AVolfe Company's sales- men and convert this amount into the price at which the accessories or supplies can be laid dovni on the floor of their factories. Furthermore, they do not care to be bothered with all the shipping and consular requirements, nor do they like to entrust this work to outsiders. The salesmen report also that the field is highly competitive, that German and English companies usually quote their prices c. i. f., and that unless the Wolfe Company quotes its prices on the same basis they will not be able to com- pete successfully with salesmen of rival companies. The company has used f . o. b. quotations in the past be- cause by requiring cash against documents in New York City it is able to transact its foreign business with but slightly different routine than it uses in its domestic business, and it is thereby relieved of the red tape and petty troubles sometimes incident to handling foreign shipments on a c. i. f. basis. Furthermore, a salesman is often unable to give an exact c. i. f. price quotation be- cause it may vary for every port which he visits. The situation is further complicated in some countries by the rapid fluctuations in the rate of exchange. Prices quoted in American dollars, even on a c. i. f. basis might change overnight because a change in the exchange rate affected the cost of insurance and service rates. There is also danger that in order to meet competitive in'ices salesmen may try to figure c. i. f . prices a little too closely, with the result that the comj)any may find itself losing a part of its profits. For these reasons a number of com- panies refuse to quote prices on a c. i. f. basis, preferring to have all their foreign business done f. o. b. PRICE POLICY 279 111 developing its foreign trade the "Wolfe Company believes that the time has come when it should deal direct with the customers rather than through a third person. Consequently, no new agencies are being established in new territories and contracts with old agencies are not being renewed. At present the company's annual sales volume is approximately $3,500,000, of which exports amount to 32%. By dealing direct mth the foreign mill o^\aiers through the company's own salesmen it is hoped to increase the amount of foreign trade business to 40%. Which policy should the Wolfe Company adopt in quoting its prices to foreign mill o'waiers? Problem 68 The Carlton Drug Company — Quoting Net Prices in Dollars F. 0. B. Seaboard versus Quoting List Prices in Foreign Currencies C. I. F.* Previous to the World War the Carlton Drug Com- pany quoted its prices in sterling not only in Great Brit- ain but also on the continent of Europe and in Latin America; it had found it easier to effect its exchange transactions through the London money market rather than directly with the countries in which it sold. Begin- ning with the outbreak of the war and continuing to the present time, the company has been quoting net prices in dollars, f. o. b. seaboard. Although many of the firm's customers are apparently satisfied with this method, of late the company has received a number of re- quests for c. i. f. quotations in foreign currencies, and its salesmen report that not a few foreign merchants prefer list price quotations vdih a string of trade dis- counts to a net quotation. This situation has given rise to a number of questions. *Adclitioiial iiifonniition may be obtained from Dudeuey, The Exporter's Handboolc and Glossary, Chap. XXIV; Hough, Practical Exporting, pages 327-334; De Haas, Foreign Trade and Shipping, Part I, Chap. VIII; and Miscellaneous Series No. 81, Chap. XII. 280 PROBLEMS IN EXPORT SALES MANAGEMENT What method of price quoting will secure the most orders ? Should the Carlton Company continue to quote prices in American dollars or should it quote in foreign cur- rencies! In the former event should the company ac- cept the conversion of American dollars into foreign currency at the rate of exchange prevailing on the date the order is taken, on the date the goods are shipped, or when the goods arrive at the foreign port ? How should it treat requests for quotations in foreign currencies? If prices are quoted in foreign currencies should the com- pany hedge the order on exchange or should it quote its prices high enough to cover the risk of fluctuating ex- change rates I If the first method is adopted should the company authorize its salesmen or agents to hedge the order at the time it is taken, should it wait until the or- der is received through the mail at the home office, or should the company anticipate its orders by hedging in advance! If orders are anticipated how should the com- pany drlermine the amount of orders to hedge! Should the quotation be f. o. b. seaboard or c. i. f. ! * In the latter event should separate price lists be made up for each foreign port or should each quotation be fig- ured separately! Should salesmen be paid a commis- *]. When the price quoted a})plies only at inland shipping point and the seller merely undertakes to load the goods on or in ears or lighters furnished by the railroad company serving the industry, or most conve- niently located to the industry, witiiout other designation as to routing, the proper term is : "F. O. B. (named point) " Under this quotation : A. Seller must (1) place goods on oi' in cars or lighters (2) secure railroad bill of lading (3) be responsible for loss and/or damage until goods have been placed in or on cars or lighters at forwarding point, and clean bill of lading has been furnished by the railroad company. B. Buyer must (1) be responsible for loss atul/or damage incurred thereafter (2) pay all transportation cliarges including taxes, if any (3) handle all suljsefiucnt niovenicnt of the goods. 2. When the seller cpiotes a price including t raiisi)ortation charges to the port of exportation without assuming resi)onsibiIity for the goods after obtaining a clean bill of lading at point of origin, the proper term is: PRICE POLICY 281 sioii on c. i. f. prices or should all coiiimis.sioiis be figured on the factory price? Should net prices or list prices be quoted '! In case the latter method is used and it is decided to quote c. i. f., how- can discounts be figured? On what basis should the sales- men be paid their commissions '! How long should quotations be allowed to stand? Should quotations in foreign currencies be made by let- ter or should they be made by cable ? If sterling returns to ])ar in the near future, should the Carlton Company retui'n to its prior practice of quoting prices in sterling? The Carlton Company sells drugs, patent medicines, and other medical i)reparations through its own sales- "F. O. B. (luiiiK'd iioint) FEEIGHT PEEPAID TO (nniiiod point on the seaboard)" Under tliis quotation: A. Seller must * (1) place goods on or in cars or lighters (2) secure railroad bill of lading (3) pay freight to named port (4) be responsible for loss and/or damage until goods liavc been placed in or on cars or lighters at forwarding ])oint, and clean bill of lading has been furnished by the railroad company B. Buyer must (1) be responsible for loss and/or damage incurred theieaftcr (2) handle all subsequent movement of the goods (3) unload goods from cars (4) transport goods to vessels (5) pay all demurrage and/or storage charges (6) arrange for storage in warehouse or on wharf where neces- sary 3. Where the seller wishes to quote a price, from wliich tlie ])uyer may deduct the cost of transportation to a given point on the seaboard." without the seller assuming responsibility for the goods after obtaining a clean bill of lading at point of origin, the proper term is: "F. O. B. (named point) FREIGHT ALLOWED TO (named point on the seaboard)" Under this quotation: A. Seller must (1) place goods on or in cars or lighters (2) secure railroad bill of lading (3) be responsible for loss and/or damage until goods have been placed in or on cars or lighters at forwarding point, and clean bill of lading lias been furnished by the rail- road company 282 PROBLEMS IN EXPORT SALES MANAGEMENT men and agents, who are usually paid a commission on their net sales. These representatives sell directly to the large drug stores and wholesalers, their orders varying A^ddely in number of items and volume. At the present time the company is well represented by salesmen and agents in Canada, Mexico, Cuba, Porto Rico, Central America, Venezuela, Colombia, Brazil, Argentina, Chile, Great Britain, France, Italy, Australia, New Zealand, Japan and India. By quoting prices in dollars the company has avoided the necessity of changing its prices frequently in order to prevent loss from exchange fluctuations. It has thus been able to make quotations and publish price lists B. Buyer must (1) be responsible for loss aud/or damage incurred thereafter (2) pay all transportation charges (buyer is then entitled to deduct from the amount of the invoice the freight paid from primary point to named port) (3) handle all subsequeut movement of the goods (4) unload goods from cars (5) transport goods to vessel (6) pay all demurrage and/or storage ciiarges (7) arrange for storage in Avarehouse or on wharf where neces- sary 4. Tlie seller may desire to quote a price covering the transportation of the goods to seaboard, assuming responsibility for loss and/or damage up to that point. In tliis case, the proper term is : "F. O. B. Cars (named point on seaboard)" Under this quotation : A. Seller must (1) place goods on or In cars (2) secure railroad bill of lading (3) pay all freiglit charges from forwarding point to port on seaboard (4) be responsible for loss and/or damage until goods have arrived in or on cars at the named port B. Buyer must (1) be responsible for loss and/or damage incurred thereafter (2) unload goods from cars (3) handle all subsequent movement of the goods (4) transport goods to vessel (5) pay all demurrage and/or storage charges. (6) arrange for storage in warehouse or on wharf where neces- sary 5. It may be that the goods, on which a price is quoted covering the transjiortation of the goods to seaboard, constitute less than a carload lot. In this case, the proper term is: "F. O. B. Cars (named port) L. C. L. " PRICE POLICY 283 which have held for an extended period. Since the com- pany pays for all supplies and labor in dollars, by quot- ing its prices in the same currency it can determine at once the amount of prof t it will receive on any sale, niodified, of course, by losses because of bad debts and interest on extensions of credit. Many customers pre- Under this quotation: A. Seller must (1) deliver goods to the initial carrier (2) secure railroad bill of lading (3) pay all freight charges from forwarding point to port on seaboard (4) be responsible for loss and/or damage until goods have ar- arrived on cars at the named port B. Buyer must (1) be responsible for loss and/or damage incurred thereafter (2) handle all subsequent movement of the goods (3) accept goods from the carrier (4) transport goods to vessel (5) pay all storage charges (6) arrange for storage in warelmuse or on wharf wliere neces- sary fJ^JffW''-' "^r^u "" ^r'^ "u"'^' '''^^ ^"^'"*1^ "»« ''-^P<^"se of transpor- tation of the goods by rail to the seaboard, including lighterage In this case the proper term is: b h s--. j-u tins "F. O. B. Cars (named port) LIGHTERAGE FEEE " Under this quotation: A. Seller must (1) place goods on or in cars (2) secure railroad bill of lading (3) pay^ all transportation cliarges to. including liglitera^e at the port named ' * ' (4) be responsible for loss and/or damage until goods have arrived on cars at the named port B. Buyer must (1) be responsible for loss and/or damage incurred thereafter 2 handle all subsequent movement of the goods {A) take out the insurance necess.-n-y to the safetv of the goods atter arrival on the cars " s"""^ (4) pay the cost of hoisting goods into vessel where weight of goods IS too great for ship's tackle ^diarges'^"""""^" "'"'^ "^*"' '^''''^''' '""''^^ lighterage 7. The seller may desire to quote a price covering deliverv of the j^ond, "F. A. S. vessel (named port)" Under this quotation: A. Seller must (1) transport goods to seaboard (2) store goods in warehouse or on wharf if necessary unless buyer's obligation includes provision of sM^ping facili 28i PROBLEMS IN EXPORT SALES MANAGEMENT fer to receive quotations in American dollars as they realize that the present unfavorable exchange rates are purely temporary; they hope that when the time comes to pay their bills, they will be able to make a profit not only on the resale of the drugs but on a rise in exchange rate as well. The company has found, hoAvever, that quoting prices in dollars encourages its customers to speculate on ex- change, with the result that if the rate goes against (H) place goods iiloiigsido vessel eitlier in a liohter or on the Avharf (4) provide the usual dock or ship's receipt (5) be responsible for loss and/or damage until goods have been delivered alongside the shi]) or on wharf B. Buyer must (1) be resj)onsible for loss and/or damage thereafter, and for insurance (2) handle all subsequent movement of the goods (3) pay cost of hoisting goods into vessel where weight of goods is too gi'eat for ship's tackle 8. The seller may desire to quote a price covering all expenses up to and including delivery of the goods ujion the overseas vessel at a named port. In this case, tlie proper term is: " F. O. P>. vessel (named ]iort) " Under this quotation: A. The seller must (1) meet all charges incurred in |da) ])e res])onsible for loss ami/or damage until goods liave been delivered alongside the ship and clean ocean bill of lading obtained (seller is not responsible for delivery of goods at destination) PRICE POLICY 285 them, they are not in position to pay their drafts at ma- turity. AVhen a merchant buys goods in dollars at a price fixed several weeks before the merchandise arrives, he can protect himself by selling futures in exchange to cover the period between the time when his goods are B. Buyer must (1) })e responsible for loss aiid/or damage thereafter and must take out all necessary insurance (2) handle all subsequent movement of the goods (3) take delivery and pay costs of discharge, lighterage, and landing at foreign port of destination in accordance with bill of lading clauses (4) jjay foreign customs duties and wharfage charges, if any 10. The seller may desire to quote a price covering the cost of the goods, the marine insurance on the goods, and all transportatiou charges to the foreign point of delivery. In this case, the proper term is: "('. 1. F. (named foreign port)" Under this quotation : A. Seller must (1) make freight contract and pay freight charges sufficient to carry goods to agreed destination (2) take out and pay for necessary marine insurance (3) deliver to huyex or his agent clean bills of lading to the agreed destination, and insurance policy and/or nego- tiable insurance certificate (4) be responsible for loss and/or damage until goods have been delivered alongside the ship, and a clean ocean bill of lading and insurance policy and/or negotiable insurance certificate have been delivered to the buyer, or his agent. (Seller is not resi)onsible for the delivery of goods at destination, nor for payment by the underwriters of in- surance claims) (5) provide war risk insurance, where necessary, for buyer's account B. Buyer must (1) be responsible for loss and/or damage thereafter, and must make all claims to which he may be entitled under the insurance directly on the underwriters (2) take delivery and pay costs of discharge, lighterage and landing at foreign port of destination in accordance with bill of lading clauses (3) pay foreign customs duties and wliarfage charges, if any • EXPLANATION OF ABBREVIATIONS ^ • O- ^ Free on board ^- ^- ^ Free alongside ^- f J Cost and freight ■ ^- ^- Cost, insurance and freight ^'- ^ • ^■' Less than carload lot In selling "F A. S. Vessel" manufacturers and exporters should be careful to have their agreements with buyers cover explicitly the question ot responsibility for loss after goods liave been delivered 'on the Avharf 286 PROBLEMS IN EXPORT SALES MANAGEMENT ordered and the date that he is able to resell them to his customers. As an actual fact, however, the average merchant is usually not familiar with the steps of a hedging operation, and even if he does possess this knowledge, he rarely makes use of it, since he hopes that exchange will rise instead of fall and that he will thus be able to make an additional profit. It has been suggested that the company should remove from the transaction this element of gambling by ar- ranging to have the price in dollars converted into for- or alongside the vessel and before they are actually loaded on the ship. There is no generally established practice on this point. . . . In order to avoid confusion in another particular, attention is called to the care Avhich must be exercised in all cases in making weight quotations. The net ton, the gross ton, and the metric ton, all differ in weight. Simi- larly there is a variation in the use of the term "hundredweight" to mean either 100 pounds or 112 pounds. It is, therefore, not sufficient to quote a price per "ton" or per "hundredweight." Instead the Conference recommends the use of the terms "ton of 2,000 lbs.", ton of 2,240 lbs.", or "ton of 2,204 tbs. ", etc. whichever is intended. It is also important to note that a carload lot in the United States means the quantity of the particular commodity in question necessary to obtain the carload" freight rate for transportation on American railways. This quantity varies according to the commodity and also varies in different parts of the country. Certain commodities being more bulky than others, the minimum carload for them is less than for heavier products occupying less space. The load required may range anywhere from 12,000 to 90,000 pounds. Consequently it is important, when quotrng prices applicable to carload lots, to so state and to specify the minimum weight necessary to make a carload lot of the particular commodity for the particular ship- ment m question. In quoting " C. & F. " or " C. I. F. ", manufacturers and exporters moving large quantities of material by one vessel should be careful to ascertain in advance the buyer's capacity to take delivery. This because, under these terms and as a condition of making the freight rate, trans- portation companies may require a certain rate of discliarge per day, and that rate of discharge might be in excess of the buyer's capacity to take delivery. In such event an adjustment with the transportation company would be necessary, which miglit affect the freight rate and consequently the price to be quoted. ... In almost all cases it should be possil)le, when making shipments by steamer, to obtain insurance cover giving full protection from primary shipping point to designated sea port delivery, and/or foreign port delivery. As ordinary marine insurance under F. P. A. conditions, i.e. free of par- ticular average, gives no protection against deterioration and/or damage to the merchandise itself while in transit, when caused by the recognized hazards attending sucli risks, shi])pers should endeavor in all cases to obtain insurance under W. P. A. (S. P. A.) condition, i. e. with particular average (subject to particular average), when in excess of the customary franchise of 3% to 5%. Under such form of insurance, underwriters will be called upon to pay claims for damages wlien these exceed the stipulated franchise. PRICE POLICY 287 eign currency at the rate of exchange prevalent on the date the goods arrive, protecting itself against a decline m exchange rates in the meantime by hedging the trans- ,T'. ^^'^"^'^ l^'"" ^''■^'^'''^^ ^'^ actually in the possession ot the foreign dealer he should assume the risk, since he IS in position to estabhsh his selling price and dispose ot his merchandise at his own discretion. This plan has been objected to on the grounds that if a customer has ninety days in which to pay for the goods after their ar- rival, he might still be unable to meet his draft at ma- turity it the exchange rates should continue to fall after his merchandise had been received. By quoting prices to a customer in his own currencv the company would make it easy for him to compare puces with other foreign houses. In spite of the decimal systein of all but the English cuiTciich's, the f«>reio-n merchant frequently has difficulty in c..ll^■el•tino■ a dollar quotation into terms of his „wn monetarv svstem- whereas it would be comparativelv easv for the com- pany to do this work ])ecause of its famiJiai-ity with and experience in handling foreign orders. As the cus tomer must resell his drugs in the native currencv this niethoii would enal)le him to know exactlv what his goods would cost and what would be his ])robable protit on their resale. Thus the element of risk from Huctuat- iiig exchange rates would be removed as far as he was concern(.d. At the present time the companv's strong- est competitor in Latin America is (pioting prices fn loreign currency. tvn'.;'.!^"'"'""^' "^ l''^^^*'^- '"iKsular iuvoic-cs ;uul .similar items are irbi- '. o'c^l F^or^-'' T"?^^" f-'—'t. tl.e.y are not included in'"^; bZr to nieet them.'- '^ '^ •"•"^='^--- -^ ^^ is part of the dutv of the American Foreign Trade Definiti.ms adopted at a eonferenee partic-iiv.te.l in l)y committees representino- tlio I'mm F)ain( ipated National Foreign Trade roinioil Chamber of Commerce of U. S \ National Association of Manufacturers American Manufacturers Export Assonation I liiladelphia Commercial :\ruseum American Kx,.orters and importers Association n.auiber of Commerce of the State of New York -\e\v ^ork Produce Exchano-e New York .Aferchants AssoHation December Kith, ]fH9. 288 PROBLEMS IN EXPORT SALES MANAGEMENT If prices are quoted in foreign currencies, however, the company must assume the risk of fluctuating ex- change rates.* Altliough this risk can be absorbed by quoting high enough prices to cover any probable varia- tions, high prices usually discourage dealers in placing orders. In most countries it is possible for the com- pany to protect its interests by selling futures to cover the amount of its orders as of the date settlement is to be expected. If the hedging transaction is made after the order has been transmitted through the mills and re- ceived by the home office, the company may suffer a loss from the marked fluctuations in exchange which may occur during the period the order is in transmission, (^apable foreign agents in important commercial cities may hedge the order at the time it is taken, but this transaction cannot be readily performed by salesmen in the inland towns in Latin America, norcanitbe performed profitably by an agent on small orders. Furthermore, if the order is cancelled or not accepted by the company for any reason the firm may stand a loss. It has been suggested that the company should attempt to hedge its orders in advance, anticipating from i)ast records the number of sales in each country, but it would be difficult to determine either the number of ordei's or the exact time when they would be secured. A foreign merchant frequently wishes to know what the merchandise will cost him in his own currency de- livered at his store and not what the goods are worth in the United States in American currency. He does not ^visll to be bothered with figuring freight and in- surance. But when a c. i. f . quotation is made the sales- man cannot be sure what the freight rates will be. Since steamship companies often grant lower rates when the cargo is on the dock ready to go into the hold than when they are asked for rates two months in advance, in order to safeguard itself the conqiait>' must figure an ample al- lowance- for freight charges based on measurements or *In Cliilc, where there is both the paper and gold peso in circuh'ition, tliis difficulty can be overcome by (piotiiig all prices in gold; but this method is not feasible in many countries which are iu)t on a gold basis. PEICE POLICY 289 weight, wliichevei- is higher. If tlie quotation is i„ for eign currency an allowance mnst also be made to cover he exchange nslc or the premium charge on the hecl°in^ transaction.- Thns in allowing for the°se risk tl e Carf ton Company nnght quote an order c. i. f. Rio de .Janeiro a;t 811 milreis. A quotation of $100, f. o. b. seaboard on the same goods might be received from a compemo ' If the merchant should figure the freio^ht nnrl ;„„ charges at $8.23 and the nUe of excSg ifj hewS find the cost to him of the f. o. b. quotation won d be i5j7o milreis. Comparing this amount with the 811 mlreis of the c. i. f. quotation he would disco ft the that the company was attempting to make excess ve profits or had but little faith in Brazilian mone fi allowed so wide a margin. In all probabiIit^• he would give h,s order to the firm quoting the lowest pric re" ard less 0 he form n, which the quotation was made ■^''" it net prices are quoted the companv has found its cata ogs are but short-lived as shown bv the tVt tha llutr^ued catalogs costing $1,730 were scra,^ d fn fte Caf.|'o p"'"-*- ^■' I""""*- '^ l'«t Pri«''. therefore dea of T' TT- J™"''' Sive its customed a gxmeS Ice mn t f" °^ '"""^ ^'""'^ '^"'''" "' «'« catalog, and ino di ; • /!,'?" '""•'•'""'t'* are accustomed to leceiv jng^disoouuts, tins method would probably appeal t' A net price, however, is more flexible than n lisf ,„•; „ -nce..t . possible to show small vr^^^not^]^:^ chased through tlio bank fo?deu!ery on tto'Tr' ^'""'''^^ "^^^^^ ^e pur- When the ]00,000 pesos ^^evoTec^vea uL^^^^^^^ ''''' ^^ ^^ "^^de. bank which would deliver Anieric m doll.r? I '^ ^'^ *"'^^ «^«^ *» the per month for the time co Jm ,. '' '"^'''"^ '' ^^^-"^^^e "^ V^ of 1% the hed.e eonld be ^xt^nded'^or "/L'^samTrrtl!""" ^^'""^' ^e Squire!: 290 PROBLEMS IN EXPORT SALES MANAGEMENT are difficult to indicate by a complicated string of dis- counts.* The use of a net price promotes simplicity and accuracy, since it is difficult for many merchants to figure a long list of discounts. This difficulty is increased if c. i. f. quotations are made, since separate lists must be made out for each port or else a complicated freight and insurance schedule must accompany the discount list. Tn the latter case the quotation is really f. o. b. seaboard, since the customer is left to figure his own c. i. f. quotation. If c. i. f. list prices are used a com- plicated sliding scale of discounts must be worked out in order to offset the inclusion of insurance and freight in the list price. Problem 69 Southwest Cooperage Company — Quotation of Prices (During 1918, a large New York bank was active in financing and supervising the shipment of wine shooks to the Argentine. Not only did the bank handle the drafts on shipments of these wine cases but through its commeicial service department and its branch in Buenos Aires it looked after the shipping documents and trans- mitted offers and acceptance of bids. On August 8, 1918, the Buenos Aires branch of the bank cabled to New York asking offers on five to ten thousand wine hliooks of 53-55 gallons ca])acity, for its customer Mendez and Tilscobar. The New York bank sought offers from different American manufacturers and received a quotation from the Southwest Cooperage Company of Paducah, Ken- tucky, in accordance with wliicli the bank sent the fol- lowing cable to its branch : *The aceuraey with which minor price variations can bo shown is one of the reasons given by tlie steel companies in support of their practice of quoting net prices. PRICE POLICY 291 "MENDEZ iVND ESCOBAK SOUTHWEST COOP- ERAGE OFFERS TEN TO FIFTEEN THOUSAND SHOOKS FIFTY-THREE FIFTY-FIYE GALLONS FOUR DOLLARS THIRTY-FIVE CENTS FOB MO- BILE OR NEW ORLEANS AUGUST SEPTEMBER DELIVERY SUBJECT EXPORT LICENSE." In acceptance the South American branch cabled the follomng terms: "REFERRING TO Y'OUR TELEGRAM SOUTH- WEST COOPERAGE MENDEZ AND ESCOBAR ACCEPT FIFTEEN TPIOUSAND WINE SHOOKS FIFTY'-THREE FIFTY"-FIVE GALLONS AT FOUR DOLLARS THIRTY-FIVE CENTS FOB IM- MEDIATE SHIPMENT FREIGHT NOT TO EX- CEED THIRTY DOLLARS INSIST UPON GOOD QUALITY^ OF WOOD AND IF NECESSARY AP- POINT EXPERT OPEN CREDIT ACCORDINGLY^ WE INSURE HERE." In accordance mth this acceptance the Southwest Coop- erage Compan}^ entered an order for 15,000 shooks for August shipment. The order was made contingent upon tlieir being able to obtain an export license for Mendez and Escobar. The New York bank wrote and asked them wiiether the quotation f. o. b. which Avas made, meant f. o. b. boat or f. o. b. cars New Orleans, to which the company answered that the price "of $4.35 each is f. o. b. cars New Orleans or Mobile.^' CA-t ^he time the order was placed considerable difficulty was experienced in making shipments to South America. In the first place, an export license had to be secured in favor of the consignees ; in the next place, internal trans- portation was over-taxed by war demands; finally, the Government had commandeered the greater part of the ocean r^hipping facilities for war purposes so that it was a difficult matter to secure ocean space for South Amer- ican ports.^ The New York bank turned over the forwarding of the order at the southern ports to a responsible for- warding firm, while the Southwest Cooperage Company cooperated witli this concern in trying to secure ocean 292 PROBLEMS IN EXPORT SALES MANAGEMENT passage for the shipment of the 15,000 wine shocks. Great di^culty was encountered in securing shipping space. In September the Southwest Cooperage Com- pany refused longer to hold the shooks at its factory because of the expense of holding them there and of the inconvenience caused by the crowding of their ware- houses.' Accordingly the bank authorized the company to make shipment, though ocean ]}assage was not yet secured. It was found that shipment could probably be effected through Mobile better than through New Orleans ; hence, the shooks Avere sent to the former port. (\Vhen the shooks arrived at the dock in .Mobile no ship- ping space had yet been secured. The forwarding firm was therefore authorized by the bank to put the order in warehouse and fully insure it until freight space could be obtained. Payment was made to the Southwest Coop- erage Company when the warehouse receipts and the railroad bill of lading were delivered.) The requests from the South American firm for ship- ment were insistent. Several times it was thought that passage was in sight but each time the Government com- mandeered the boat which was to be used. (On Septem- ber 19, upon inquiry from the South American firm, the bank cabled to Buenos Aires that the shipment was on its way to Mobile and delivery could be expected within two weeks.\ On October 14 the bank again cabled that shipment would be within four weeks. On November 20 the statement was made that the goods would leave with- in ten days. On the 13th of December a definite date of December 24 was set. Un fact, the shipment was not ef- fected until the 10th of January. This exchange of cables amounted to some $300, (Argentine paper), all of which vras charged to the account of the consignee. Wareliouse charges accumulated at the i)ort of Mobile from the time of arrival of the shipment from Paducah until January 10, to the extent of U. S. $2,760^ More- over, interest was charged to the consignee from the date of payment to the Southwest Cooperage Company until iho date of payment by the consignee in Buenos Aires. PRJCE POI.ICV 293 XOii April 7, 1919, the Xew York bank received the fol- lowiiiiL;' cable from its branch in Buenos Aires : — "MEXDEZ AND ESCOBAR OBJECT TO WARE- IK )1^SE CHARGES ON SHOOKS IF YOr CAN- NOT OBTAIN REPtTND SOUTHWEST COOPER- AGE THEY OFFER SUBMIT ARBITRATION CABLE IF SOUTHWEST COOPERAGE WILLING TO REIMBURSE '7 This information was sent to the Southwest C^ooper- ag-e Company, who replied that ''since the shocks w^ere sold f .• o. b. New Orleans or Mobile, and were delivered to the latter port, we cannot see on what grounds the buyers refuse to assume the storage and cartage charges. Since the sliooks were sold f. o. b. Mobile the matter of ocean freight was out of our control and was not a con- dition in the sale." (The bank cabled its branch that "the sliooks were sold f. o. b. New Orleans and w^re delivered to Mobile at no advance in freight charges and that the firm did not see on what grounds the buyers could refuse to^ssume storage and cartage charges.'/ rriie firm of ]\[endez and Escobar had meanwhile de- cided to submit the dispute to the American C^hamber of Commerce in Buenos Aires,) which has acted in many cases as arbitrator in such matters. The following ex- tracts are taken from the letter which they submitted to the American Cham1)er of Commerce : — "In tlie cliMraetci- of Ijrokers for ^larino &: CouipMiiy and Goii- zali'z HciMiianos, we be?' to place before you the following shook business upon Avhich difference of opinion has arisen with re- li'ard to the payment of two items,; — one of U. S. $1,600, Avhieh the. National Bank of New York charges us for inter- est on an amount, paid before the proper time, and. another of T\ S. ;f"2,760 for warehouse charges on shooks while in deposit in JMobile. The facts of the case are as follows : — "On the 24th of July, 1918. the National Bank of Xew Voi'k through its branch made us the following otf er : "In reply to your request for prices of shooks we have re- ct'ived Ihe following cable from our head office: "MENDEZ AND ESCOBAR SOUTHWEST COOP- ERAGE COMPANY OFFERS TEN TO FIFTEEN THOUSAND SHOCKS FIFTY-THREE FIFTY- 294 PROBLEMS IN EXPORT SALES MANAGEMENT FIVE GALLONS FOUR DOLLARS THIRTY-FIVE CENTS FOB MOBILE OR NEW ORLEANS AU- GUST SEPTEMBER DELIVERY SUBJECT EX- PORT LICENSES" "On the 8th of Aiiyust of the same year we accepted the offer of these shooks. to be shipped immediately. "The letter of credit opened by the ■ National Bank of New York, the original of which is in our possession, states the following :— 'This ci-edit will be utilized by sight drafts against deli\ery of shipping documents, invoices, complete sets of bills of lading of order, insurance policy, including war risk and certificate of origin corresponding to tlie following merchandise: — 15,000 wine shooks to be shipped by steamei-, Buenos Aires.' This agree- ment in accordance with that al)ove written, has had as a basis: 1, Shipments in August and September, 2. Payment against complete sets of the shipping documents. The shooks instead of having been shipped on the dates in- dicated, were shipped oidy on .January 21, 1919, the buyers hav- ing sutfered during all this time. "The coiuiitions of the offer are distinct and consist in the sale f. o. 1).. which accordiiig to all commercial practices signify put on board; and the conditions of the credit are also definite and clear and establish that the payment of the merchandise would only be elfective against delive}-y of shipping documents. In consequence, the amount of T. S. $1,600 for interest on the sum of $66,250. for 115 days, should be reduced to 73 days. This is 1". S. $790. In view of the fact that payment Avas eft'ected on the 15th day of November. 191S, the interest should only be computed from the 17th of January, 1919, the date on which payment was made for freight and when the merchandise was shipped, and, consequently, the date on which the bills of lading should have been delivered. "With reference to the sum of U. S. $2,760, which the bank in- tends to collect for warehouse charges in New Orleans, we con- sider this a completely arbitrary demand, for the reasons we have expressed, which are based on the conditions f. o. b., under which the shooks were bought, and which they alone clearly determine and deliveiy was to bo made on board and free of all exjieiise, especially that of the warehouse." \ On May 23 the branch bank cabled New York : "MENDEZ AND ESCOBAR SHOOKS MATTER UNDER ARBITRATION AMERICAN CHAMBER OF COMMERCE APPARENTLY FAVOR BUY- ERS CLAIM REGARDING INTEREST AS THEY PRICE POLICY 295 DID XOT AUTHORIZE PAYMENT AGAINST WAREHOUSE RECEIPTS CREDIT BEING OPENED AGAINST SHIPPING DOCUMENTS CABLE URGENT COULD YOU OBTAIN REFUND SOT'THWEST COOPERAGE ") / (Tlio bank replied with a sharp cable, asking ''what claims are being arbitrated and the grounds for the same, and by whom the arbitration was authorized on SouthA\est Cooperage behalf. The Southwest Cooper- age insists that there was no possible claim against them since the goods w^re delivered f. o. b. Mobile, which in this country means f. o. b. cars; goods therefore at pur- chaser's risk after arrival New Orleans; credit not opened against ocean documents but against railroad bill of lading or warehouse receipts." When the branch bank showed this to its customers in Buenos Aires they agreed to withdraw their petition be- fore the American Chamber of Commerce provided the bank used its good offices in trying to put through their claim with the American firm. They wrote the head office to this effect. What action should have been taken by the Southwest Cooperage Company upon this claim of Mendez and Esco- bar? AVhat measures should have been taken to have avoided any such misunderstanding?) Problem 70 Morrison Manufacturing Company — Uniformity of Selling Price A question regarding establishment of a uniform price policy in its export business has now been placed before the directors of the Morrison Manufacturing Company. This corporation, organized in 1897 for the manufacture of hammers, hatchets, saws, and other carpenter tools, has succeeded in establishing national distribution sell- ing all its products under its trade name. In the United 2J)() PROBLEMS IN EXPORT SALES MANAGEMENT States the product lias l)eeu sold tlirongli wholesalers at a ni'lt'orm price and orders from retailers or consmn- ers have not been accepted. Previous to 1914, the com- pany dumped occasional surpluses in the foreign mar- kets, securing prices which were frequently below costs. Durin.g the AVorld "War, when European competition was at least partially eliminated, the company sold goods in the South American market somewhat more regularly at prices which yielded a substantial profit. However, it did not develop this trade to any great extent, because of domestic and European demand for these articles. At the present time (December 1921) because of the increas- ing number of competitors who are flooding the domestic market with goods, the Morrison Manufacturing Com- pany must look elsewhere for customers if it is to run its factory on an efficient basis. Air. Morrison, president of the I\Iorrison Manufac- tui'ing (lompany, recently conferred with Mr. Carlton, assistant manager of a commission house with sales- men in several foreign countries, regarding the price pol- icy that the Morrison Company should folloAV in order to develop a substantial foreign trade. In this conference I\[r. (Jarlton gave his opinion as follows: ''Our sales- men fan sell your tools at almost any reasonable price at \\liich }'our company will bill them. If the price is very low it will be possible for our men to sell large orders to foreign wholesalers and big consumers. If your price is not quite so favorable, the large wholesalers will refuse to touch the merchandise and it will be necessary for the salesmen to call on the smaller jobbers. If the ]n-ice is comparatively high, however, the -salesmen will be able to sell only to retailers who will ])lace small orders. In many foreign markets the liiK' of tools produced by the Morrison Manufacturing < 'ompany is not well known. Many jobbers and wholesalers refuse to place orders at an\' ])ric(' until the ])rodu('t is introduced. Thei'efore, in order to establish your line in those districts, it is nec- essary that our salesmen sell first to small retailers before ii'oing to the wholesaler or jol)l)('i- and asking him to stock PRICE POLICY a97 the goods. This i.s fh. only «-ay that y„u can hnnlv cstah- lish customers m a foreign country. Ot course, (lie cost of selling to retailers is higher than that of selhng to jobbers Obviously It costs more to call upon many sinall'ioblie.^ than It does upon a few large wliolesalers and conimis^ ever IZ^'' Tf '''^^°"li"§ly. In the long run, how- beiiefi? hv ? ?•"' ^•""'\««"^P«"y ^"1' gain the greatest m?ne^ t ",• t?*'"^ ^ ^"^'^^ '"'""'^ ^"» ««teblish a per- manent clientele, even though the preliminary cost ma^- reduce the amount of profit received "If you are to take this step it would be advisable for tZwLt^i ',;r ''Tv'""" ^"'"^ '°^^'^^ p"- 1-''^ fo he o-ood will t 1," 7 "'" "*"""■' "' °«^"' *° ™«"'*«i" the good will ot the former. Another point which von must remember is that the relation of the foreign marke hnndl: oT'""-' """i^'' "^'■'™P'<^' ^- ""S'^t «^'" - - tion to ret^iwr'' f f "'^''■ "' ^^'^'''' <^'">-' l""' di«tribu- non to letailers and imal consumers within his countrv Therefore, we could sell him merchandise at the Z". i^ shipped to ]!.ngland are frequently transshipped to a holesaler m India or other countries. It is dear tha Eno and'a^ ur " '"^^e to Roberts, a transshippe h t Unot be'i 1 trf' '" ^^''''''"' wholesaler, the former «m not oe able to show a reasonable profit in sellino- to holesalers Therefore, it is necessary to lave d ffefent prices in order to enter different markets." ' f-n^';f «"""" "f"" ^""^ "P *" ^"''Stio" with tlie secre tai of the e.^port association which had handled a part iia<- might have made a nominal i)rofit on the transaction, the inter- est charge for sixty days on such an order would have reduced the i^rofit materially; consequently it refused to grant the .Mexican importer's request. As a result it failed to secure any of his business. One way in which the company might avoid this trouble in the future is to prejjare lists of customers according to their credit rating — those who can be given sixty to ninety days' terms, those who must pay cash upon the' arrival of the goods, and those who must })ay a deposit in advance. It appears to be the usual practice for the company's foreign customers to take all tlie time they can in paying their bills, so that in quoting a price to any customer the salesman sliould base his quotation on the maximum credit terms allowed. This policy might work with old, established customers whose rating is definitely known,' but frequently the salesman calls on dealers about whom the company has had little or no credit information. ]\rany salesmen say that the only way in which this matter can be handled is through experience. Through spending a number of years in the foreign field, a sales- man should learn to size up a customer's financial con- dition and judge the probable length of credit terms for which he will ask and which the comjjany can grant. Others propose that the salesmen should be instructed to quote terms and prices together and that customers must accept both the terms and the prices quoted or none. If the credit department should refuse to approve of the terms quoted and require cash in advance, the price would be reduced. But since terms are the important thing in an agricultural country, it is doubtful if a slight reduction in price would assuage the customer's ill-will caused by the refusal to accept the terms quoted. 300 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 72 McDermott Company — Fixed Prices versus Price Variation by Salesmen In selling braids, I'ibbous, lacings, trimmings, and dressmakers' findings in Latin America, the McDermott Company sets a minimum ]irice l)'j]()w which its salesmen cannot go in making price concessions, but any amount that can be secured above the miuimnm price is split half and half between the salesman and the company. In addition to this price bonus, the salesman is paid of course a salary and all his expenses. This policy Avas adopted because the competition of foreign houses fre- quently made it necessary for the salesman to cable for special price reductions. At the time this plan was |)ut into effect the salesforce was small and was composed of experienced men, but now the force has doubled in size and a numbei' of new men have l)een added. By setting a minimum price l)elow which no oixler can be taken the company avoids much useless cabling; decision as to the need of a price concession is left to the men on the ground who are conversant with the facts; by ottering to split all overages with them, the company assures itself that its salesmen will not cut prices unnec- essarih\ In many Latin American countries it appears to be a custom in the trade to give price Y^ariations on the basis of friendship or for other reasons in order to secure the business. Frequently the people of these countries are not familiar with the one-price policy and ai"e accus- tomed to bargain over the terms. Com])etition in the line of goods produced by the McDermott Company is Y^M-y keen. By reducing prices to meet the demands of cus- tomers the company is ahnost sure to secure the inti'oduc- tion of its lirie, assures itself of getting the maximum price possible, and at the same time sets a minimum price to insure a reasonal)le })i-olit ])elow which a sales- man cannot go. Having operated this jilan for two years the company has discovered that its sales are not so large in some dis- PRICE POLICY 301 tricts as had been hoped. Some salesmen appear to work successfully when they are allowed to vary the price, but occasionally others apparently forget compe- tition entirely so interested are they in securing an over- price which they can split with the company. Still other salesmen are so keen to make a good showing that they ignore the possibility of securing a price above the minimum set by the company, \\dth the result that the minimum price becomes the standard price for all their orders. Sometimes a customer learns that his competi- tor has received a lower price than he and the good-wil] of the company is injured, the customer frequently refus- ing to place further orders A\T.th the McDermott Company unless a rebate is made on past purchases. Because of these difficulties the McDermott (company realizes keeidy the unsatisfactory points in its present system, but it is perplexed as to a policy which could l^e pursued witliout raising still greater difiiculties. Problem 73 Calkins Talcum Powder Company — Cash Discounts .Many Latin American customers of the Calkins Talcum Powder Company not only have failed to pay their bills promptly, but also have asked for extensions beyond the 60-day limit of the terms agreed upon. In the domestic market the company has found that in selling cold cream, talcum ])owder, and other toilet preparations the same terms of 2% — 10 days, 60 days net have been ample to encourage prompt payment by most retail customers. It apiDcars that this delay in the payments of Latin Ameri- can retailers is partialh^ due to the high interest rates charged by their banks.* Exchange fluctuations, poor business conditions, and the seasonal influences, which dominate commercial transactions in agricultural coun- tries, have also played their part. Because of this situa- *Tli(' iionnal interest r;ite in Peru was reported as 9% in 1922. 302 PROBLEMS IN EXPORT SALES MANAGEMENT tion, the company is considering the expediency of grant- ing an increased cash disconnt in order to encourage the prompt settk'ment of Latin-American accounts. Although by granting a 37o or 4% cash discount the company might encourage its customers to borrow from the banks to meet their ol)ligations, even though th(^ interest rate should be higher than that in the United States, there is the danger that a customer's ill-will would be incurred if he were forced to lose so large a discount because he was a few days late in paying his bill. Fur- thermore, in an agricultural country where seasonal influ- ences are great and extended terms are sometimes con- sidered more important than low prices, it cannot be expected that customers will always be able to make im- mediate payments even though a larger discount is given. It is proposed, therefore, that the company should cul- tivate the good-will of its foreign customers by granting any reasonable time that they may require to pay their bills, but arranging the discount rate accordingly. In order to protect the company it is suggested that easlom- ers should be encouraged to supply letters of credit. If customers suppl}^ credits against which the company can draw at sight, a maximum cash discount of 4% wi;uld l)e allowed ; if they supply credits against which the company can di'aw at 30 days, a cash disconnt of ?//< would be allowed ; if at 6i) days, 2*% would be allowed ; if at DO days, 1% would be allowed; if at fonr nioiiihs, llu> company Avould draw on them tor the net amount of the invoice. Even extended credits beyond the four-mouth i)eriod could be arranged at a reasonable i-ate of intei-cst, i^ro- viding the customer agreed that a ('ontirmcd banker's letter of credit would be supplied. This plan has many advantages both for the Calkins Company and for its customers. The company would gain through the prompt ])aynient of its bills or through the paying of interest by the customer in case ])rompt payment was not made. The customer would gaiii because the removal of this burden of risk would enable the company to quote lower prices. Furtliei*more, letters of credit being limiied as to time, the ('om));iii_\' would PRICE POLICY 303 have an additional iiicciitivo to make the shipments at the times specified, in order to avoid the necessity of arrang- ing for an extension or renewal of the letter of credit in ease it should expire. If a customer is in good credit standing with his home hanker, he should be able to arrange for a letter of credit at a nominal charge without being required to reimburse the bank until he ha> l)een informed that actual payment against the letter of credit has been made. This measure of elasticity should meet the varying requirements of the foreign buyer according to local business conditions and seasonal varia- tions. Tt is doubtful, however, if the majority of foreign retailers could be induced to adopt this method, since many are not familiar with modern banking methods and are accustomed to receiving credit from the firms from which they purchase. Furthermore, unless they were convinced of the integrity and good intention of the Calkins Company, they would not be willing to open a letter of credit when they might not be satisfied that the merchandise shipped would be in accordance with either the samples submitted or the specifications on which the order was placed. Problem 74 Calkins Talcum Powder Company — Quantity Discounts Thirty-five per cent of the retaik'is in Porto Rico, Cuba, and Mexico are reported as overstocked in the toilet preparatioiLs manufacturetl by the Calkins Talcum Powder Company. There has ai)parently l)cen a tendency on the part of salesmen to encourage customers to place large orders on the ground that the latter will secure lower prices by taking advantage of tlie following list of discounts: $50 order, 2%; $100 order, I]'. ; ^InO order, 47f ; $200 order, 'y^r ; $250 order, (i', ; $:]()() order and <»ver, 1'',. lacing disa]:)i)oint('(l al the nnionnl o1" stock 30t PROBLEMS IN EXPORT SALES MANAGEMENT still on hand at the time of the salesman's next visit, not a few retailers have claimed that the goods were slow moving and have been unduly cautious in placing addi- tional orders. In other instances, l)ecause of the exposure of the toilet preparations to dirt and moisture during the time they were in the dealer's possession, the packages presented such a soiled and disreputable appearance that they cast discredit on the company's products. In the domestic market, manufacturers of food products subject to rapid deterioration often refuse to grant quantity dis- counts because they do not wish to encourage merchants to purchase an oversupply ; hence the company is consid- ering whether it would not be advisable to adopt this same policy in Latin America. By refusing to grant quantity discounts, the company would also discourage price cutting. In Mexico City complaints have been made by two small retailers that a large department store is able to undersell them because of the larger quantity discounts which it secures. The same situation has been encountered in Tampico, Vera Cruz, Monterey, and Havana, Cuba. AYlien salesmen have shown the discount list, explaining that any retailer that can secure 7% discount by increasing his order, these merchants have shrugged their shoulders and expressed the belief that the department store buyer had received a special concession. Although the difficulties enumerated might be partially eliminated by doing away with quantity discounts, most foreign buyers, particularly those in Latin America, apparently expect to receive a concession in price on large orders. A second plan, therefore, has been proposed: the company should follow its domestic policy of allowing the maximum discount of 3% on all orders over $50. It has been pointed out that Calkins Company's real reason for giving its customers a quantity discount is to pass on to them the saving resulting from their placing large orders. Inasmuch as separate cases must be packed for orders over $50, the saving on large shipments does not increase appreciably beyond the 3% saving on the $50 order. The quantity discount of 7% now given on a $300 PRICE POLICY 305 order i-eprosi'iits, tlicrefore, approximately a 4% inside discount given to the large customers. It must be borne ii. mind, however, that while in the United States a sales- man calls on his customers on an average of once every two or three weeks, in the Latin American field a sales- man calls on his customers once in two or three months. Consequently it is necessary that the Latin retailer place a larger order than the domestic dealer, which he might hesitate to do unless the salesman was able to point out to him the advantage of placing a large order, in order to save the 7% quantit}" discount. Problem 75 The Morrow Safety Razor Company — Price Maintenance The Morrow Safety Razor Company in 1920 had diffi- culty in maintaining retail prices for its safet}' razors in foreign markets because of fluctuations in foreign exchange. It was the policy of the company to maintain a fixed retail price in both the domestic and foreign markets — one dollar in the United States for the Economy model, 6 shillings in England, and four pesos in Argentina. In the United States there were legal difficulties in maintain- ing prices but in England and Argentina there were no laws forbidding the practice. The Morrow Safety Eazor Company had a wojld-wide distribution of its product. The factory was located on the Eastern seaboard of the United States. Normally about 50% of its total trade was with foreign countries — of the foreign trade about 70% was with Europe, 20% with Latin America, and 10% with Asia. The following plan was suggested to maintain prices in England at an even level for 1921. An agreement should be made with a bank by which the bank would buy sterling from the company for the year at a fixed price. It was estimated by the officials of the company that the 306 PROBLEMS IN EXPORT SALES MANAGEMENT 1921 sales to England would amount to 120,000 £ sterling and tliat sterling at the rate of abont 10,000 pounds a month would be required. A bank was willing to buy sterling at the flat rate of $3.90 for the year. The officials of the company were of the opinion that sterling would not go very far above that figure, and, indeed, mthout professing to be experts on the subject, they were inclined to think that sterling would command considerably less than that amount. The actual working of the plan would be as follows: The company was al)le to sell the Economy model razor to retail at 6 shillings ^\'itll exchange at $3.90 at a profit. If, however, sterling fell to $3.60, and the above plan were not in effect, in order to avoid a loss the company would be compelled to I'aise the retail price. Should the 3,[o]*row Safety Razor Company have adopted the above plan! Problem 76 Saunders Sewing Machine Company — Price Maintenance In the United States contracts to maintain resale prices are illegal; in Great Britain, although not illegal, they cannot be enforced; but in most of the other important countries of the world such contracts have full legal sig- nificance. The Saunders Sewing ^Machine Company how- ever has never availed itself of the opportunity of enter- ing into any contract with foreign merchants controlling resale prices, although it exports its product to practi- cally every civilized country of the world. From time to time it has advised its dealers to refrain from price cut- ting, on the ground that if one merchant cuts the price on Saunders sewing machines it would be necessary for others to do likewise and soon there would be no profit for any merchant who handled the line. In spite of this advice, word has been received that several merchants in Japan and China have been cutting prices on these PRICE POLICY 307 machines and that the trade of other dealers has been seriously injured through refusal on the part of the customers to buy Saunders machines except at the lower price. Under these conditions, the company is weighing the expediency of entering into contracts with all foreign dealers requiring them to maintain an established resale price. The company sells to all dealers in a given territory on a one-price basis, steadfastly refusing "to grant quantity discounts or other concessions which might lead to price cutting on the part of large dealers ; but without a con- tract actually preventing this practice, the Saunders Com- pany has no way of compelling merchants to maintain the resale price. By insisting that foreign merchants maintain a stand- ard resale price on Saunders machines, the company can be sure that its dealers are securing a high enough percen- tage of mark-up to make it profitable for them to carry the line. The dealer's interest in the product is held if a standard price is maintained which assures him of a fair mai-gin of profit ; he cannot, however, be expected to push an article on which he loses money because the price has been cut below cost by his competitors. If present price- cutting methods are allowed to continue, it is probable that a number of dealers will drop the Saunders line entirely. Even with the dealers' customers, a low price may repel rather than enlist purchasers, for good-will, prestige, and the value of the product in the minds of con- sumers suffer when prices are cut. Conditions are not the same in each territory, and in some localities competition with low-priced Gei^an and Austrian machines is so keen that unless the merchants can occasionally shave the price, they are unable to sell as many machines as they might otherwise. The policy of one price to all is not so universally understood in most foreign countries as it is in the United States and for- eigners are frequently accustomed to haggle over prices. Althougli the company has advised its dealers to main- tain a standard resale price for their own protection and 308 PROBLEMS IN EXPORT SALES MANAGEMENT benefit, to compel all to maintain a single resale price might be detrimental to both the dealer and the com- pany b}^ causing a reduction in the volume of sales. Even if a dealer did enter into a contract with the Saunders Sewing Machine Company to maintain prices, he might be tempted to violate this agreement and because of the bias and partiality of many of the foreign courts the Saunders Sewing 2\Iachine Company might have difficulty in enforcing its claim. Problem 77 The Camden Hosiery Company — Price Policy [AVhen in May 1922 the president of the Camden Ho- siery Company made his annual trip to England, the fall buying season had just opened. In order to get business there he found it necessary to make a drastic cut in the prevailing prices of the firm's hosiery. Upon iiis return to the United States early in June, he received a letter from one of his largest customers, Jose Grataro of Bue- nos Aires. The letter stated that, while traveling recently in England, he had heard of the low price quoted on quality B hosiery. As an old customer of the Camden Company, he did not feel that he should be placed at a disadvantage because he purchased directly from the firm rather than through England. He therefore asked to be given a rebate on the large supply of quality B hosiery which he had in stock and for which he had paid -tc more per pair than the newly established price] The company has never established a uniform price level for the sale of its product in foreign markets. The president has firmly believed that any concern which tried to establish uniform prices would suffer greatly from price-cutters. iThe policy of the company has been to fix at whatever price was necessary to get business at the opening of the season in any market. After the season's buying Avas under way and prices had become established, PRICE POLICY 309 customers were guaranteed that prices would stand througliout the .season. At the time that this request for rebate came in, the Camden factories were operating at only 70% capacity and fixed charges were dipping into profits. Argentine buyers would soon be laying in their spring supphes, since the seasons are the opposite of those north of the Equator. The company feels it would be unfortunate to lose the good- will of its farge customers, though it is unwilling to make the concession asked for unless it appears to be good business. ) CHAPTER VII SALES METHODS T HE efforts of the etfective export or<;-anizatioii sliould be directed toward (a) Finding the prospective purchaser; (b) Selling him the goods; (c) Delivering goods purchased; (d) Securing payment; (e) Building up good-will which will materialize in continued and increasing business. Although in most cases it is necessary for the seller to exert himself in order to secure prospects and sales, occasionally goods are sold on the basis of inquiry initi- ated by the buyer. When the buyer takes the initiative, he may make his inquiry through correspondence direct to the manu- facturer. A second method is that of undertaking to buy particular goods through a special ])uyer, who comes on a buying trip to this country. In the third place, some of the more important foreign importers maintain resident buying agents in the United Slates, just as im- portant American concerns maintain foreign buying representatives in various parts of the world. Lastly, the manufacturer may receive orders without solicita- tion from export commission houses or export mer- chants, but here as elsewhere the seller must usually take the initiative and he may bring his goods to the attention of the export merchant or export commission house either by means of the usual correspondence and advertising or by personal solicitation or otherwise. The buyer foi- an export commission house, in filling an order oi- indent, will frequently send out requests to various manufacturers for quotations. Sometimes he 310 EXPORT SALES METHODS 311 places his order with firms from which he has been ac- customed to purchase, without further inquiry. Occa- sionally the manufacturer will find it possible to get at the export merchant or export commission house more effectively through an agent located in the port. Since this tends to add another middleman it is not to be en- couraged. Although sales to export commission houses relieve the exporter of the routine of foreign shipment and financing, this method is subject to the disadvan- tage that purchases are frequently made purely on the basis of price. Furthermore the manufacturer who wishes to build up good-will in various markets for his trade-mark will ordinarily not find selling through com- mission houses the most effective method. Such houses frequently use their own trade-marks in selling to for- eign markets. Nevertheless, the benefits to be derived through combinations of small orders, cheaper freight and insurance rates, which are primarily of benefit to the. buyer, are not to be overlooked in competition with particular markets, if we leave out of account the neces- sity for selling on a price basis, the cost of getting busi- ness from these houses is not great; and where the manufacturer does not contemplate a further develop- ment of foreign business, no special home organization is necessary. Since the sources of orders received by commission houses are often unknown to the manufac- turer, he has no basis for knomng the markets in which his goods are finding favor and has a very slight basis for developing direct exporting without much further study. Experienced exporters frequently refuse to sell through commission houses unless they are informed as to the destination of the goods, so that they may protect exclusive agencies in various markets and avoid uninten- tional violation of contract. The manufacturer who aims to sell direct to foreign buyer or who wishes to build up good-will for his firm and for his product, will find that in general the same means are open to him to develop foreign sales that he 312 PROBLEMS IN EXPORT SALES MANAGEMENT uses in making domestic sales. Among these are the following : (1) Mail campaigns. Circularization, correspond- ence, samples. (2) Advertising. Various media, periodicals, pos- ters, souvenirs, etc. (3) Personal salesmanship. Solicitation by sales- men or officers of firm. (4) Eesident agents, who utilize advertising, per- sonal salesmanship, etc. (5) Reciprocal relationship involved in investment of capital in foreign countries. These will be considered in turn. The possibilities of mail campaigns in developing for- eign markets are frequently overlooked. While the re- sults are slower than in domestic campaigns, there is the advantage of lower cost. Lists of thousands of buyers may be secured at small cost. Trade lists are published or made available by the Department of Commerce, the export trade journals and some trade associations. Among directories one of the most useful publications is the large Directory of Merchants, Manufacturers and Shippers of the World published bj^ the Kelly Publish- ing Company. While mail campaigns reach large num- bers of buyers, there is a distinct element of weakness in circularization, particularly in competition with per- sonal salesmanship of competitors. To reach markets where personal salesmanship is too expensive, to arouse interest in a product for agencies or in preparation of visits of salesmen, mail campaigns have much to recom- mend them. Every logical plan for the development of the foreign market will include mail selling effort. The manufacturer, wlio has used mail campaigns in domestic markets, knows that in such campaigns waste may be multiplied by carelessness in making up mail literature. He knows also that, if he depends upon dealers for dis- tribution, he cannot conduct a campaign for direct-to- consumcr selling without meeting satisfactorily the ob- jection of dealers. EXPORT SALES METHODS 313 The novice in foreign trade will be surprised at the widespread nse of samples as compared to domestic trade. Sampling is the universal means of conveying information about products to foreign buyers. Sam- ples as used in foreign trade may be classified as follows : (1) Analysis samples, sealed samples which have to be or have been anal^^zed by chemical experts. (2) Stand- ard samples or types, upon the basis of wliicli, for in- stance, raw products such as coffee, tea, sugar, tobacco, wheat or cotton are sold for future delivery. Usually the type is a sample of produce taken from the previous year's growth. In the leading business centers, speci- mens or types of ditferent commodities dealt in are kept for purpose of reference at the office of the local chamber of commerce or the headquarters of the various brokers' associations. In case of sufficiently important varia- tions, the matter is generally submitted to the arbitra- tion of experts, a fact which denotes that the sale on tyi)e basis implies great confidence between the con- tracting ])arties. (3) Buyers' samples and counter samples—inquiries from overseas customers are often accompanied by samples intended to supplement the written descriptions of the goods wanted and which we may call "buyers' " samples. The exporter submits these samples to local manufacturers, obtaining from them in return counter samples of similar or nearly similar goods. (4) Reference or shipping samples — these are actual portions taken from the goods about to be delivered and forwarded by the seller to the buyer for purposes of reference. In the case of raw products and semi-manufactured goods they are known generally as shipping samples. Such samples enable the buyer to formulate his objections without delay, possibly be- fore delivery should the reference samples prove the goods to be unsuitable, or to dispose of his purchase before it reaches his hands, and finally to check the goods on arrival by comparison with the reference sam- ples. Reference samples are not samples on the basis of which the order was originally given. (5) The most 314 PROBLEMS IN EXPORT SALES MANAGEMENT common type of samples is the selling sample used by salesmen, travelers, agents, and brokers. Samples which can be used economically are frequently sup- plied to applicants at considerable rebate on the whole- sale prices. We may say that the sample method is used even in the case of large electrical installation, where exist- ing installation servos as a sample for other commodi- ties of the same type. The manufacturer who expects to enter foreign trade must early decide upon his sample policy. If the product is new, if the use is not well known, samples must be placed in the hands of pros- pective buj^ers. In placing these samples, however, it is possible to incur very great waste. There are per- sons all over the world who are known as sample col- lectors, whose interest in the product persists only until free samples are secured. They can do little or nothing for the sale of the product, and samples sent to them are a total loss. Where the product is one of value it is frequently, perhaps always, best to make a charge for it. The plan followed by many manufacturers is that of giving a liberal discount upon samples; in such a case, a request for samples indicates some real interest in the product. A judicious use of samples is essential for the successful u|)])uildiiig of foreign business in many lines. Salesmen must be supplied with samples where possible. However, unnecessary bulk should be avoided. Both on account of cost of transportation and frequent taxes and tariffs, samples may involve large additional expense. The function of adA^ertising in export trade is pre- cisely the same as in domestic trade. Advertising may be used as a means of creating dealer demand, dealer preference, or consumer demand or acceptance. Ad- vertising may be used to prepare the way for the sales- man, to enable him to make a greater volume of sales than otherwise would be possible. Advertising may be used likewise to help move the products from dealers' shelves. Several problems confront the exporter who EXPORT SALES METHODS 315 wishes to advertise his products in a foreign land: the formulation of advertising policy, the estimate of appro- priation, the selection of media, and the preparation of advertisements. The formulation of policy will depend largely upon the opinion of the export manager as to the efficacy of advertising a particular product in given markets. The appropriation to be made for foreign advertising will depend, of course, upon the general financial budget, and the amount which can be allocated to the development of foreign sales. Foreign advertis- ing campaigns may be planned for as wide a range of appropriations as in domestic selling. The variation from modest initial advertisements to world-wide cam- paigns offers possibility of meeting any set of conditions imposed by character of product, size of concern, or other factors. Keeping in mind differences in purchasing power, purchasing habits, and habits of thought, the same prin- ciples apply to the preparation of foreign advertising as to domestic. However, that does not mean that an advertisement which ranked high in selling power in the United States would so rank in Argentina. In illus- tration and wording, the appeals will be consistent ^vith the customs and habits of the country to which the ad- vertising is directed. Amusing instances are related of American manufacturers who have not been suffi- ciently careful in choosing illustrations or in translating domestic selling arguments. The advertising media available to the exporter are as varied as in the domestic market. In addition to direct-mail advertising through circulars and corre- spondence, there is a possibility of advertising in direc- tories, and in a number of classes of periodicals, both domestic periodicals intended for export trade and for- eign periodicals in* the various markets. As in the United States these may be divided into general periodi- cals, class periodicals, and trade journals, and the con- siderations affecting their value as advertising media do not differ from domestic. Foreign newspapers are 316 PROBLEMS IN EXPORT SALES MANAGEMENT also frequently used as a means of developing consumer and dealer interest. In certain countries the high per- centage of illiteracy renders posters and lithographs particularly valuable as a means of advertising. Not a few manufacturers today believe that the motion pic- ture has very great possibilities in export advertising. Since international trade is carried on largely on the basis of samples, it is not strange that elaborate ar- rangements have been made for the display of samples in various countries. Both periodical and permanent displays have been developed through the so-called ''fairs," the chief of which are those held in Brussels, Lyons, and Leipzig, and the sample exhibitions main- tained in various countries. Mention should be made also of novelties and souvenirs in foreign advertising, such media frequently being much more effective than in the United States. The success of the manufacturer in developing for- eign business will depend not alone upon the care with which he undertakes his advertising nor the care with which he handles his traveling salesmen in foreign mar- kets, but upon the care with which he handles both and correlates their efforts. It may be said that the suc- cessful manufacturer, in developing foreign business by means of traveling salesmen, will depend to a greater extent upon the ability and personality of the salesmen and less upon the qualit}", utility and appearance of his wares than in the case of domestic sales. Salesmen sent out into foreign countries, where language, customs, and methods of living are different, will meet with many problems which in the domestic organization would be solved at once by long experience, by custom, or by reference to the sales executive. It is essential that the salesman know his product and how to sell it, but he must give up the idea that the details of American selling methods can be applied indiscriminately. In increasing measure America will owe a preference for its products in export trade to its investments in foreign countries. Before the war England, Germany, EXPORT SALES METHODS 317 and France as creditor countries owed a large volume of their export trade to investment in overseas enter- prises. Where foreign capital was used to finance a rail- w^ay in Argentina, an electric railway in Brazil, or a power plant in China, it was almost invariably provided that the supplies used in its construction should be pur- chased in the country from which the funds for financing were drawn. In addition, such financing created a basis of good-will which is reflected in trade statistics. A. Selection of Selling Methods: 1. Considerations affecting the choice of selling methods. 2. Advertising and correspondence as a means of effecting sales. Under what conditions shall a concern attempt to effect sales purely by means of advertising? What forms of advertising should be used? Should advertising be local or should it cover the country or continent? What advertising media should be used? Should a catalog be used? If so, what should be its form and how should it be prepared? o. Forms and amount of personal solicitation to be used. Under what conditions shall a concern attempt to effect sales purely by means of personal solicitation through salesmen ? Are salesmen necessary if exclusive agents are appointed? To what extent should the salesman be a missionary salesman aiding the retailer in selling goods? 4. Correlation of advertising, personal salesmanship, and cor- respondence. How can personal salesmanship and advertising be com- bined to produce greatest selling efficiency? 318 PROBLEMS IN EXPORT SALES MANAGEMENT B. Advertising : Should a concern in export trade use purely publicity advertisiiig- or should it attempt to sell its goods through advertising? What forms of advertising are to be used as a means of creating consumer demand in export markets? How can advertising be used as a means of creating good- will among prospective dealers ? What should be the basis of tlie export advertising ap- propriation ? What are the elements of strength and weakness of direct- mail advertising in foreign trade ? Should the concern advertise in domestic periodicals in- tended for ex]ioi-t trade? If so, how are they to be selected ? If decision is made to advertise in foreign periodicals, how is the advertising to be handled? Where is it possi])le to get information regarding circula- tion and value of foreign periodicals as advertising media ? To whom shall export advertising be directed? What appeals should be used in export advertising? Should the same appeals be used in both domestic and foreign advertising ? How is the ex])ort advertiser to guard against faulty translation ? With a given advertising appropriation, is it better to use a number of insertions with small space or a few inser- tions with large space ? What precautions are necessary in connection with the use of color and illustration in foi-eign advertising? How are the various advertising media to be coi-related in foreign advertising campaigns? How is it possible to check advertising in foreign publica- tions, whether handled directly or through advertising agencies ? EXPORT SALES METHODS 319 C. EXF'ORT CoRRKSI'ONDENnE : 1. Sioiiificaiico of correspondenee in export trado. How does the general tenoi' of export corresjiondeiuM' dift'ei- from domestic .' How does the inipoi'tanee of correspondence as a means of selling in export trade compare with its importance in domestic trade 1 Why is it necessary to use extreme care in writing to foreign buyers or prospects? 2. The language of correspondence — translation. Should the exporter employ his own translators or depend upon outside agencies? If the latter course is pursued, what precautions should he taken to guard against misunderstandings ? If tlie exportei' employs his own translators, to what extent should they be responsible for the contents of the correspondence? Should they merely translate letters already prepared by export executives? 3. Handling inquiries. What methods should be used in handling inquiries from foreign buyers or prospective buyers? How should follow-ups be handled when sales are made direct ? How should follow-ups be handled when sales are made through agents, commission houses, etc.? 4. Sales letters in export trade versus domestic sales letters. How does the view-point of the foreign buyer affect the tone of the sales letter written b}^ the American exporter ? What variations in length, personal references, etc., are to be found in foreign correspondence? What considerations make it even more important for the foreign than for the domestic sales letter to be con- cise and clear? 320 PROBLEMS IN EXPORT SALES MANAGEMENT D. The Use of Cables in Export Correspondence: To what extent should the export executive permit and encourage the use of cables by salesmen? Should ]>ublic or private cables be used? Sliould messages be sent in cipher ? ilow can accuracy of cables sent out by the exporter be assured? Ls it advisable to have messages coded and de- eo(UHl, thus causing them to pass through the liands of at k^'Hst two employees? IIoav should cables from abroad be acknowledged? How should the firm's cable system be made known to the foreign customer? Should it be registered? llow can cables be used to cut costs in ('X]-)Oi-t selling? E. The Export CataI/Og : Is it advisable for the individual concern to use an export catalog? Would the results obtained justify the ex- penditure ? How can the catalog l)e i)re])ai"ed to miuimiz(» the cor- I'espondeucc necessary in (effecting sales? What method should be adopted with regard to illustra- tions, quoting of prices, descriptions, weights and mea- sures, selling arguments, language, stock of cover aiul inside pages, size, coding of articles, etc.? Should the catalog be sent out prior to the visit of tlie salesman.' if salesmen are used? Sliould the catalog be used mei'ely to create interest or to effect sales? Will it shorten time i-ecpiircMl for develop- ment of foreign market ? How should catalog rights be prolceted in foreign countries ? Sliouhl the catalog be sent to all in(|uirers? How do the customs duties of the various countries affect the pre])ai-taion of the catalog? EXPORT SALES METHODS 321 Problem 78 National Machine Tool Corporation — Choice of Selling Methods* The National Machine Tool Corporation, formed in the spring of 1922, was a consolidation of four large manufacturers of machine tools and was capitalized for $20,000,000. The constituent firms taken together manu- facture a complete line of machine tools, specializing however in tools for heavy duty such as heavy-duty wheel and axle lathes, boring mills, slomers, slotters, planers, including crank and plate-edge heavy-duty drilling machines, external and internal cylindrical grinding machines, horizontal and vertical milling ma- chines, horizontal and vertical punches, shears of vari- ous types, cold saws, bending and straightening rolls, automatic dye heads, miscellaneous small tools, and a complete line of shop equipment. In the domestic market the companies have generally followed the practice of selling through their own branches in industrial centers and through machinery dealers in other sections. In the foreign market two of the constituent companies have sold only upon order through export commission houses or export merchants or upon receipt of direct orders from consumers, in which case they shipped through commission houses. The third concern has given the exclusive agency for its products in Europe to a firm located in Coventry. This agent represents a number of American manufac- turers and is also engaged in mamifacturing a certain type of machine tools on his own account. A sales force is maintained to call upon machinery dealers and pros- pective large customers in all the western European countries. The National Corporation is confronted with the problem of whether it should maintain this repre- *Upon selling methods in foreign trade, see the various general works upon foreign trade, particularly under the headings "Traveling Sales- men" and "Advertising." Numerous references are to be found also in the periodicals dealing with export trade and in those dealing with ad- vertising. 322 PROBLEMS IN EXPORT SALES MANAGEMENT sentation and is somewhat inclined to do so, since it feels that for some time to come it should not establish branches, at least not nntil the volume of trade in par- ticular markets is larger than at present. The officers of the company realize that, unless active measures are taken to sell tools, no increase in volume can be expected. (The fourtli manufacturer has done no foreign busi- ness.) Several proposals have been made — first, that the company prepare a series of catalogs in foreign lan- guages, which shall give complete descriptions of the tools and of the work which the}^ will do. Secondly, that salesmen with technical training and with experience in foreign markets be employed to call upon machinery dealers and large users in foreign countries, soliciting orders which would be turned over to local agents if these happen to have exclusive territory. A third pro- posal is to make arrangements for taking a series of motion pictures, which will not only show the machines in operation in typical establishments but also how the machines are manufactured and give an idea of the ex- tent and size of the plants of the National Machine Tool Corporation. A further suggestion is that the company should exhibit some of its important machines, which are properly protected by patents in foreign countries, at the Lyons fair* ; also that the company maintain a permanent exhibition at the Bush Terminal. *The Lyons Fair lias boon held every spring and fall since 1916, when it was started by the mayor of the city in competition with the Leipzig Fair. No retail selling is done, but orders are taken for future de- liveries. Different ])arts of the city are set aside for the various classes of goods. The trade sections which are re])resented at the spring fair are not eligible for exhibition at the fall fair. The fair is not conducted for profit, iDut charges are made simply to meet expenses; it is endorsed by the French Government, the City Council, and the Chamber of Commerce of Lyons. The United States, Eurojie, Asia and Ijatin America are repre- sented by exhibitors and visitors. EXPORT SALES METHODS 323 Problem 79 The Madden Company — Developing New Territory* In an attem])t to increase its foreign trade the Madden Company is considering the best method of breaking into new territory. This firm manufactures paper clips, ink wells, inks, mucilage, and other small metal and glass office supplies. Because of the present busi- ness depression in the United States its domestic sales are not increasing as rapidly as formerly, and the offi- cers of the company believe that the domestic market is being flooded with similar products. Since this has *Upou direct-mail selling, see Hough, Practical Exporting, Chap. V; Wyman, Export Mcrchatidisiiuh Chap. XV; and the following periodical references : Printers' InJc. May 26, 1921, p. 57— "Making Export Profits bv Correspondence." June 30, 1921, p. 2.3— "Better Export Sales Letters." Oct. 15, 1921, p. 5—" Advertising by Direct Mail in England." Export Trade and Exporters' Eevieiv. Sept. 25, 1920, p. 5 — "Automatic Notifications to Important Cus- tomers. ' ' Dec. 25, 1920, p. 5— "Sales Promotion bv ^lai]." Mar. 19, 1921, p. 18— "Colloquialisms Puzzle tlie Translator " July 16, 1921, p. 5— "Postage Due." Sept. 24, 1921, p. 5— "Skillful Translation Cleans More Than Dic- tionary Excellence. ' ' Xov. 19, 1921, p. IS— "Following Up Foreign Letters." April 15, 1922, p. S— "Sales Promotion by Mail." The World's Markets. Jan. 1920, p. 28— "A Word for the Translator " May 1921, p. 23— " How to Build Foreign Sales." Proceedings of annual conventions. National Foreign Trade Council. ^^il' •^'•i^^.^''- "^^ ^'- ^- Kascheu— "The Modern Languages in 1 heir Kelation to Foreign Trade Eelations." While all the works upon foreign trade touch upon the subject of sam- ples, more comp ete discussions are to be found in works of foi^ign origin • see Dudeney, The Exporter's Handbook and G'ossar,,, Chap XXIX At- tention niay also be called to Hough, Practical Exporting, pages sls-S'^'- and the following periodical references: -^ i s ° — . The World's Markets. Aug. 1921, p. 37— "How to Build Foreign Sales." Printers' Ink. Sept. 9, 1920, p. 33— "Sampling in Export Selling." Export Trade and Exporters' Hevieu: ^Plus.- ^^^^' ^' •■^-"^^''^^'•^ Sentiment Can Be Made Efficiency 324 PROBLEMS IN EXPORT SALES MANAGEMENT resnllod in an increased unit cost of selling in the do- mestic market, the company is planning to build up its export trade. This firm alread}' has some foreign trade, its product being distributed through its own salesmen in some parts of Europe, South America, Australia, and New Zealand. The managers believe, from a study of their present export business, that there is a big opportunity for the further development of its business in the north- ern and western parts of South xAinerica, territories not covered by their salesmen. There is, however, but little working capital to invest in the promotion of export business. In order to concentrate the company's efforts the managers wish, before putting a salesforce in the field, to secure at the least expense some idea of the potential market for their products in Venezuela, Co- lombia, Peru, Ecuador, and Chile. They are consider- ing, therefore, whether to carry on the preliminary sur- vey and development of the new territorj^ by a mail campaign or by a preliminary visit by an experienced foreign salesman. If a salesman is sent to Colombia aud Venezuela he will be able to make an analysis of the conditions and secure first-hand information as to the advisability of introducing office supplies into these countries. He will also be able to make actual contacts with the dealers and to select a few typical merchants through whom to introduce this merchandise. He will likewise be in a position to make many suggestions as to changing or modifying the product in order to meet local demands. To send out a salesman on such a trip, however, means a high sahiry and traveling expense, since it -will take him several months to make a survey of Colombia and Venezuela alone. Unless he actually places orders, which would require more time, it would be difficult for him to make an adequate report as to whether or not the dealers are really interested enougii to make purchases. Tf a preliminary campaign by mail is to be launched as an introductory step, a mailing list can easily be EXPORT SALES METHODS 325 secured from R. G. Dun & Co., the American Exporter, the Bureau of Foreign and Domestic Commerce, or a private mailing list agency. The first step in de- velo])ing such a plan is to send out a circular with interesting illustrations of the product in color and a self-addressed envelope with form for a reply. The replies can then be followed up by a personal letter from the export manager of the Madden Company and a cata- log of the products the company is ready to export. After a few orders ha\-e l)een secured from a district l)y mail a salesman can l)e despatched to this territory. Because of the preliminary work the salesman's time can be devoted to calling on merchants who have signified an interest in selling the Aladden Company's product. One of the main difficulties of such a plan is that the shops in Venezuela, Colombia, Peru, Ecuador, and Chile, as well as other foreign countries, differ so widely in the type of goods that they carry. Thus it is frequent! v impossible to tell from a mailing list whether or not a particular merchant will l)e in position to stock a line of office supplies. The company's circulars, therefore, will be mailed to a large number of dealers who cannot possibly be interested in carrying the firm's merchan- dise. Furthermore, even in the case of dealers who are interested, few v.ill place orders on the basis of colored illustrations and a fancy catalog. Frequently these merchants will not understand all the uses to which the Madden Company's products may be put. Which method should the Madden Companv adopt in developing^ new territory ;' Should the company make an offer of free samples in its direct-mail advertising! 32G PROBLEMS IN EXPORT SALES MANAGEMENT Problem 80 The Dunn Company— Choice of Selling Methods The Dunn Company manufactures cheesecloth for do- mestic use, bandages of all kinds, jewelers' cotton, and absorbent cotton. In the domestic market its product is distributed directly to the hospital trade and through the wholesale dry goods jobbing trade in so far as its products are used for household purposes. The company sells both nnbranded and branded goods. It advertises its cheesecloth and its absorbent cotton to some extent in the Ladies' Home Journal, Woman's Home Companion, Good Housekeeping, and in similar journals. In spite of its advertising, the domestic market is not a stable one from week to week. The volume of orders received may vary widely at all times of the year. As a conse- quence, the company has looked with much favor upon the proposal to develop its foreign trade. In the past it has sold some quantities destined for foreign markets, mainly on the basis of bids made to commission houses. The goods sold were nnbranded and there was no reason to expect that the company could expect any continued growth of such business except by the consistent cutting of prices to a point which would make it unprofitable. The company knows that it is in as good a position as any competitor in the United States to manufacture goods of quality at low prices. While it is not fully informed as to the extent of European competition in its line, the efficiency of its own organization is such that it has no fear of German or English manufacturers. In the plan of development of the foreign market it has been decided to start with South America. Would it be wise to send salesmen to South America at once or should the company undertake an advertising campaign preliminary to sending out salesmen*? The suggestion has also Ijeen made that for the next three years the company contine its cnltiA-ation of foreign markets to a direct-mail cani]:)aigii including elaborate sampling. EXPORT SALES METHODS 327 Problem 81 Hamilton Oil Company — Additional Branches vs. Advertising For the past twenty-one years the Hamilton Oil Com- pany has operated a branch in Buenos Aires covering Argentina, Paraguay, Urugua3% and the southern part of Brazil. The rest of South America has been covered by agents located in Rio de Janeiro and Santiago Avho have covered Brazil, Chile and Peru, by the appointment of sub-agents in practically all the large cities, and by an agent located in Bogota who has covered Venezuela, Colombia, and Ecuador. The company is not satisfied with its sales volume in South America, nor with the manner in which its agents have been conducting the business. Competitors are becoming more and more numerous and the directors of the Hamilton Oil Com- pany are convinced that their organization should have established branch offices in order to check up the work of the agents and assist them in fighting competition. The first plan is to establish branch offices in Rio de Janeiro, Santiago, and Bogota in order to protect the company's interests and build up its sales volume in the surrounding districts. Each branch manager would have complete charge of his territory with power to appoint and remove agents and enter into all contracts necessary on behalf of the company. He would also have power to set sales quotas for each agent and pass on all extensions of credit. He would have power of attorney to represent the company in any litigations that might arise and to take legal steps where necessary to protect the interests of the company. These positions would require capable executives, but at present the company has no one to fill them except men, who, al- Ihougli tliey possess the other qualifications, are not familiar with the language and customs of the company's customers in South America. It would take a year, or ])ossibly two years, to train these men to fill the position of branch manager. This delay would be particularly 328 PROBLEMS IN EXPORT SALES MANAGEMENT costly since competitors are losing no time in securing a lioid on tlie South -American market. To avoid this delay it has been proposed to give the entire territory of South America to the present branch manager in Buenos Aires. This man is an Argentine native who has been with the company for almost forty years, during which time he has demonstrated his ability and loyalty. He has been the head of the branch in Buenos Aires for the past sixteen years, and is thor- oughly familiar with the languages and customs of the South American people. By giving him complete charge of the South American territory the company would be catering to the pride of many Ijatin Americans in deal- ing with one of their own race. This man has all the de- sirable qualities necessary for a good branch manager and his appointment to this important post would be a suitable reward for his long service with the company. The chief objection which stands in the way of such a decision lies in the fact that the whole of South America is a tremendously large territory and that transportation between the different parts is extremely difficult. In the north there are Init few railroads, and the only connec- tion with the cities on the western and eastern coasts is by boat. Likewise, Chile is separated from Argentina and Brazil by the Andes Mountains and although a rail- road has been built across these mountains, considerable time is required to make the trip. Coupled with this difficulty is the fact that there exists among some of the Latin peoples a certain amount of jealousy and dislike of dealing with merchants from other South American states. The third plan is to leave the present organization as it is and attempt to increase the volume of business, first, b}' sending salesmen from the home office who shall nominally be in charge of the agents in the cities visited, the purpose of such salesmen being to assist the agents to increase business, to see that advertising plans are properly carried out, and in general to act as the com- jjany's representatives with the particular agents for EXPORT SALES METHODS 329 the period of the stay and as the partners of the agents in carrying on their business in Hamilton oil. The sec- ond part of the plan provides for extensive local adver- tising to be scheduled in such a way that the height of each local campaign shall coincide with the visits of the special or missionary salesmen. AVhich plan should the Hamilton Oil Company adopt? Problem 82 Washington Motor Car ('ompanv — Foreign Advertising* The AVashington Motor (*ar Company, maker of a low-priced, six-cylinder car well known in the domestic market, has recently entered the foreign field, having distributing agencies in England, Prance, Denmark, Brazil, Argentina, Chile, and Mexico. Contact lietween the company and its agencies is maintained through travelers who give the dealers technical information *Upon advertisiuij in fureijiii trade, see ^itardi, Principles of Advertifiin!/, Chap. XXXVl ; Wyman (Business Training Corp.), Direct Exporting, Chap. VI; Vedder, American Metliods in Foreign Trade, Chap. XVJII; Wolfe, Theory and Practice of Internationat Commerce, Chap. XX; Wyman, Ex- port Merchandising, Chap. XVI; and artkdes as follows: The Horld's Markets. May 1919, p. 27 — "Advertising fur Foreign Tratle. " May 19122, p. 13— "Modern Export Methods." Proeeediugs of annual couventions of National Foreign Trade Council. 1919, p. 217, Frank A. Arnold — "Survey and Method of Advertising for Foreign Trade. ' ' 1919, p. 248, W. G. Hildebrant — "Foreign Advertising Successes." 1921, p. 281, Elmer 11. Allen— "The Development of an Export Business Through Advertising." 1922, p. 445, William Menkol— " What the New Export Advertiser Needs to Know. ' ' Printers' Ink. Jan. 9, 1919, p. 129— "liow to Advertise Abroad." May 22, 1919, p. 123— "The Globe-Trotting Advertising Man." July 31, 1919, p. 121 — "Getting the Foreign Atmo.sphere in Export Advertising. ' ' Feb. 26, 1920, p. 97— "Horse Sense in Foreign Advertising." Nov. 18, 1920, p. 77— "Helping a World Organization to Adver- tise. ' ' 330 PROBLEMS IN EXPORT SALES MANAGEMENT and sometimes assist them in maldng sales, but so far no foreign advertising lias been done. The firm has re- cently made an initial advertising appropriation of $35,- 000 for the first year's work in those foreign markets that from the records of the export department appear to offer immediate promise, but no definite plan of handling this Avork has as yet been determined. The problems facing the Washington Motor Company in launching its foreign advertising campaign are many. Because of its lack of knowledge of foreign languages and the appeals necessary to make advertising effective in the different countries abroad, the company's adver- tising department is handicapped in writing copy. To turn this matter over to a foreign advertising agency which is neither familiar with its product nor closely connected with the sales efforts of the company, how- ever, is to run the risk of failing to secure adequate re- turns for the money expended. The selection of effect- ive media is even more difficult inasmuch as there are Export Trade & Exporters' Review. Apr. 19, 1919, p. 13— "Advertising,' to the World." Sept. 20, 1920, p. 9 — "Local Color in Export Publicity." Journal of Commerce and Commercial Bulletin. May 6, 1921 — "Simplicity Need in Advertisinji; Abroad." Upon advertising api>ropriations, see the following : The World's Marlets. .June 1921, p. 28 — "Foreign Advertising Approj)riations. " Export Trade & Exporters' Review. Jan. 21, 1922, p. 22 — "Your Export Advertising Appropriatiou for 1922." Feb. 25, 1922, p. 5— | "A $10,000 Export Advertising Budget for Mar. 4, 1922, p. 13— f 1922." For information upon advertising media, consult the following: Cooper. Foreign Trade Marlets and Methods, Chap. XIV; Filsinger (Irving National Bank), Trading With Latin America, pages 102-105; Vedder, American Methods in Foreign Trade, Chap. XIV; and the following periodical references : Printers ' InTc. Mar. 13, 1919, p. 105— "The Advertising Mediums of China." Proceedings of annual conventions of National Foreign Trade Council. 191(5, p. 354, J. Eoland Kay — "Utilization of Advertising Media in Foreign Countries. ' ' 1918, p. 468, Ernst B. Filsinger — "Successful Advertising Methods and Mediums. ' ' 1919, p. 236, Howard G. Winn*?—" Advertising Media." EXPORT SALES METHODS 331 no audit bureaus or other organizations of advertisers or advertising agencies that can check circulation state- ments. Sworn statements are rarely obtainable and the assertion has frequently been made that circulation claims of foreign publications are limited only by the audacity or integrity of the publishers, few of whom are known to American advertisers. The practice of main- taining a standard rate is practically unknown among foreign publishers and only by continual and careful checking is it possible to make sure that an appropria- tion is wisely expended. The advertising department of the Washington Com- pany has been handling its advertising in the United States in conjunction with a domestic advertising agency. This agency prepares the copy with the help of the company's own advertising department, advises on the media to be used, and assists in planning the advertising campaign. The advertising department approves all copy, follows up each insertion, checks re- sults as far as possible, furnishes the agency with cuts and practical information, and adjusts all advertising plans to the appropriation budget. The first plan contemplated by the Washington Com- pany is to have its foreign advertising handled in the same way as its domestic advertising. This agency is capable and efficient, knows the Washington car thor- oughly, and is eager to handle the company's foreign advertising. Its staff, however, knows little or nothing about foreign trade and advertising conditions abroad, since it has never entered this field to any extent. The experience of other manufacturers has proved that methods and practices of the domestic field cannot al- ways be employed effectively in foreign countries. If the domestic agency should attempt to overcome this handicap by securing aid from foreign advertising agencies in making the translations and placing adver- tising, the Washington Company would be dealing through an additional middleman, and with the commis- sions divided between the two advertising firms, effi- cient service could scarcely be expected. 3;52 PROBLEMS IN EXPORT SALES MANAGEMENT To overcome this difficulty it is proposed that the ad- vertising department should do the worlv, with the help and advice of the export department whose travelers report on business conditions abroad and frequently are able to inform the company of the media recom- mended by foreign agencies. Under this plan the com- pany would be sure that its advertising efforts and sales efforts were coordinated. The export manager, the traveler's, and the foreign agents, however, have had no experience in advertising; the advertising depart- ment, on the other hand, is not experienced in preparing foreign copy and has no statf of translators. It is fre- quently difficult to secure the lowest rate from foreign publishers or to check the results. In turning over the foreign advertising campaign to the advertising depart- ment which is inexperienced in this woi k, the Washington Company would ])e making an experiment that might prove expensive as well as unsatisfactory. The third plan is to employ local foreign agencies in each market in order to obtain the advantage of having the advertising handled by an organization familiar with local conditions abroad. The advocates of this plan say that advertisements with greater pulling power should result, but as many foreign agencies are space brokers, working on a straight commission basis, their first regard is to maintain the liighest possible rate of expenditure in the publications that pay them the best. Although the foreign advertising agency might be of service in carrying out instructions under strict super- vision and limitations, its remoteness prevents the con- sultation and joint study so necessary in planning a suc- cessful campaign. American foreign advertising agencies have been recommended because consultations could be easily ai- ranged in their offices in the U. S. and because they wouhl 1)0 more familiar witli foreign conditions than domestic agencies. Too I'lHHiuciitly, however, the Ameri- can foreign agency is in reality a space broker or adver- tising contract agency with many of the same weak- nesses of the local agency abroad. Depending as they EXPORT SALES METHODS 333 do entirely on commissions, payable when bills are rendered to the advertiser accompanied by proof of insertion, such agencies must protect their own inter- ests. Their overhead costs for keeping themselves in- formed of rates and other data, as well as maintaining their organization for the handling of orders and the checking and financing of insertions, are so large that they cannot, on a straight commission basis, undertake efficiently the great amount of work necessary to over- come the obstacles to success in a foreign advertising- campaign. Furthermore, foreign agencies usually place their orders as quickly as possible, for even under the best conditions they must wait for several months be- fore beginning to receive returns in the way of commis- sions on advertising, checking, and billing to clients. The last proposal is to secure the services of an over- seas advertising agency with connections abroad as well as in the United States. This type of organiza- tion, l)ecause of its knowledge of foreign conditions, U'ould be in a position either to advise the advertising- department in the preparation of copy, or to prepare the copy itself and make the propei' translations into the foreign language. To overcome the same objections that apply to other foreign advertising agencies and to secure conscientious service, such an agency should be relieved from ha^dng- to depend upon commissions from foreign publications for its expenses. In place of such an ar- rangement a contract Avould be drawn up whereby, in return for a monthly retainer of approximately $350 paid by the Washington Company, this overseas agency would protect the interests of the former, and give advice on the preparation of advertising and the selection of media. In addition it would receive its usual commission from the foreign publications to compensate it for its other duties. This plan would be expensive and reduce the appropria- tion at the start by about 12%, but it would make the advertising- agency really an agent of the Washington Company rather than a space broker for foreign pub- lications. 334 PROBLEMS IN EXPORT SALES MANAGEMENT Which plan should the Washington Motor Car Com- pany adopt for tho handling of its foreign advertising? Should the advertising department or the agency write the copy? How sliouki the a[)i)ropi-iaii()ii of ^."irj/JUO be divided among the various media avaihil>le in Rngland, Brazil, Argentina, and Afexico? Problem 83 Reingold Sewing Machine Company — Advertising Policy Both the foreign and domestic advertising of the Rein- gold Sewing Machine Compaiw are supervised by the domestic advertising department. Although this depart- ment has the weakness of not being familiar with the psychology of appeal necessary in the foreign fields and has sometimes shown a tendency to use, as foreign ad- vertising, copy which has been successful in the United States, it has not been deemed advisable to have a sep- arate foreign advertising department. Since the Rein- gold Company does not advertise abroad twelve months of the year, a foreign advertising division would be ex- pensive and it would be difficult to provide continuous employment for the staff. Because the company's foreign agents are more fami- liar with the needs of their markets than is the domestic advertising department, the selection of media and the writing of copy are largely left to their discretion. From time to time the Reingold Company sends its agents advertising literature and electros, but except for occa- sional advice and mild criticism the advertising is handled almost entirely by the foreign agents. Tlie company has laid down no ironclad rules in respect to the advertising discount allowed its agents to cover the cost of their jjublicity work, but judges each agent according to his needs. Frequently, in addition to the 2% advertising EXPORT SALES METHODS 335 discount which is usually allowed, the agent may secure a special advertising concession. This is particularly true in a growing market where the foreign dealer is using his o^^^l capital and surplus to expand his business and is able to convince the company that it would be a hardship for him to use any of this capital for pubhcity work. The policy of the Reingold Company is held by several officials to be wasteful. Large amounts of money are sometimes spent in a foreign market mth no tangible returns. It is recommended that the company increase its advertising discount to 2147^ on condition* that each agent shall spend an equal amount of his own money in this work. The selection of media and the writing of copy would still be left largely to the agent's discretion, be- cause of his close contact and familiarity with the needs of the local market. However, since the agent would pay half the cost, it is almost certain that reasonable care would be used. The advertising department would con- tinue to give advice as to the best methods of advertis- ing, would frequently send examples of good advertising clipped from foreign ]xn-iodicals, and would assist the agent by sending him electros and other advertising helps. In order to secure the 21/0% discount, the agent must submit copies of each advertisement mth a state- ment as to its cost. In this Avay the company will have a check on the effectiveness of its advertising appropria- tion and the responsibility for results will not be left entirely to the foreign agents, many of whom have had but little advertising experience. To what extent should the Reingold Sewing Machine Company change its i)resent advertising policy? 336 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 84 Pembroke Office Equipment Company — Advertising by Principal or Agents After establishing agents in the foreign field the Pem- broke Office Equipment Company itself discontinued all foreign advertising. Contracts entered into with its agents provided that the latter should spend three-quar- ters of one percent of their total sales in local advertis- ing and that the company should furnish electros, stand- ard copy, and suggestions for circularizing. Later this plan was modified slightly and the company agreed to furnish circulars with the agent's name printed thereon, which could be distributed to prospective customers. The suggestion has been made by the head of an ad- vertising agency that the Pembroke Company should again take up direct advertising in the foreign field. The company maintains a direct selling organization, which assists its agents in securing orders and makes sugges- tions as to new methods of approach. By circularizing its prospects from the United States the company would better estal)lish its product and trademark in the minds of its Latin American and European customers. People in South America are not flooded with sales circulars to the same extent that dealers are in this country and a letter from a foreign firm frequently" makes a distinct impression. Follow-up circularization by the local dealer would then establish the position of both the Pembroke Company and its agent in the market. Magazines and trade papers frequently have a wide circulation, and a local agent cannot be expected to spend his money build- ing up sales in districts outside his own territory. This type of advertising media should therefore be handled by the company. The Pembroke Company has found that to rely on foreign agents to carry on all advertising has a number of disadvantages, since the foreigner can scarcely be expected to have the information and expert knowledge of the manufacturing company. The firm's foreign EXPORT SALES METHODS 337 agents are usually not advertising men and their at- tempts to secure publicity are frequently inefficient if not almost ludicrous. These agents however do x^ossess a knowledge of local conditions, customs, and buying habits of their customers and they should be able to ■select the type of copy with the greatest appeal. The Pembroke Company is loath to make additional appro- priations for advertising unless it appears to be clearly advisable to do so and it is considering how it would be possible to imjDrove the publicity work now being done by its foreign agents. Problem 85 Barcclona Talking Machine Company — Control of Foreign Advertislng From its entrance into foreign trade until the present time the Barcelona Talking Machine Company has left all foreign advertising in the hands of its branch man- agers and foreign dealers. Its method is to allow an advertising discount of 2% from the retail price on all instruments, providing the branch manager or dealer spends a similar amount. Vouchers showing the amount of money expended are considered ample evi- dence for the company to make its usual advertising al- lowance. That this plan is unsatisfactory is shown by the fact that one dealer has been sending in forged vouchers and that several other agents are suspected of having entered into collusion with space brokers of for- eign publications. Even when dealers are known to be honest they frequently are not experienced advertisers and without doubt a portion of the company's appropria- tion for advertising is not wisely expended. The Barcelona is a well-known, nationally advertised machine with a long-established reputation for quality of tone. Of late years it has had a number of imitators and competition has been so keen that this firm has been 338 PROBLEMS IN EXPORT SALES MANAGEMENT forced to spend between $50,000 and $60,000 in adver- tising, giving dealer helps, and in operating retail sales branches in order to hold its position in the field. As these expenditures frequently have been out of propor- tion to the results achieved, the Barcelona Company is not in a strong financial condition, and it is imperative that the firm receive the full returns from any expend- iture which it makes for foreign advertising. This point is doubly important, since it is hoped that foreign sales will be a means of strengthening the company materially. A foreign advertising exporter, who has been consulted as to the best means of securing advertising control, has advised the following solution: "As domestic advertising is frequently based on conviction, but foreign advertising is usually based on persviasion, for the home office to attempt to take over all foreign advertising would be a serious mistake ; standardized copy which would be certain to develop, would be almost as bad as though domestic copy were used abroad. On the contrary, the company should con- tinue its present method of leaving its foreign advertising mainly in the hands of its dealers and branch managers because they are familiar with local conditions. With branches in London, Paris, Milan, and Melbourne, Australia, and with agents dis- tributed throughout the rest of Western Europe and Latin America, the firm has such a strong organization on the ground, that there is no need for securing the services of a foreign adver- tising agency. "In order to overcome the severe handicap due to lack of advertising experience of its branch managers and agents the company should develop a series of interesting cuts to be fur- nished agents, providing they will pay for the space used. Slides and short motion picture reels showing the care used in manu- facturing the Barcelona should be loaned the agent providing he is willing to pay for having them shown in the local theatres. Colored posters should also be supplied on condition that the agent arranges and pays for the necessary billboard space. ' ' To insure that all money is properly accounted for, a ledger account should be kept for all advertising aids. When $3,000 is spent for posters, the amount should be entered on the debit side of the poster account; against this amount should be charged on the credit side each shipment of posters made to the branches and agents. Any discrepancy between the credit EXPORT SALES METHODS 339 and debit sides of the account must be explained by the adver- tising- manager. En addition, each merchant's name should be entered on a 5 x 8 card, on the back of which a record would be kept of the advertising helps sent him and the date on which they were shipped. A follow-up file should be maintained to facilitate tracing shipments and to insure the delivery of the material. "The composition of copy and the selection of media should not be left entirely to the judgment of the agent or branch manager, for too frequently such a man does not possess sufficient training to discharge these duties efficiently. Instead, the advertising manag-er should send each agent and branch manager carefully selected copy suitable for his particular needs. This copy should be translated into the foreign language of the agent who would make any modifications necessary to meet local conditions. A sample layout should also accompany the copy and specific instructions should be given as to the selection of advertising media. "In order to give the advertising- manager an idea of condi- tions abroad and to enable him to select appropriate copy, the Barcelona Company should subscribe to the leading foreign newspapers and magazines. From these publications the adver- tising manager would learn the Avidth of the columns and the other characteristics of the publications of each country. He would learn, for example, whether advertisements were concen- trated on the front page in Danish newspapers or whether they were scattered throughout the entire paper, and would base his suggestions to the Copenhagen agent accordingly. Having for- eign newspapers on file would also enable him to clip striking advertisements of competitors and other firms which could be sent to the dealer calling attention to the type of advertising other firms were using in his country. "Before the advertising discount is allowed the agent must submit not only a voucher showing the amount spent, but a copy of each advertising insert as well. In case the advertisement is ]iot in accord with the instructions of the advertising manager, modified to meet local conditions, or in case the advertisement appears in a medium which is Aveak and unsatisfactory from the company's standpoint, part or all of this advertising allowance may be withheld. It is probable, however, that it would not be necessary to enforce this threat, as the agent would be careful to comply with the company's regulations once he was informed that the advertising allowance might be withheld should he fail to do so." Branch managers and agents, however, have operated under decentralized control for so long a period that it 3i0 PROBLEMS IN EXPORT SALES MANAGEMENT would undoubtedly be difficult for a foreign advertising manager to centralize control in his own hands without arousing the ill will or even open hostility of the foreign sales representatives of the company. In the case of the branch manager, it is possible for the company to order his compliance with the advertising manager's requests, but in the case of dealers, the company's control must be exercised Avith tact. The use of cuts, motion pictures, and posters in addition to the present newspaper adver- tising allowance will bring the company's expenditure for foreign advertising to almost 3%. Althougli in a weak financial condition, the firm should be able to stand this increase, provided returns are received commensurate with this expenditure. During the present period of ex- treme competition, however, the firm is unwilling to adopt a radical change in methods unless it can maintain the good-will of its foreign organization and at the same time secure more efficient results from the expenditure of its advertising appropriation. Problem 86 The Gates Optical Company — Developing Export Sales by Correspondence The Gates Optical Company was established in 1897 for the manufacture and distribution of optical goods, particularly lenses, metal, xylanite, and imitation tor- toise-shell frames, mountings, opera glasses, field glasses, eye-glass cases, telescopes, barometers, and thermome- ters, as well as fountain pens. The concern's domestic business amounts to over $4()0,{)00. Although there is at present no reserve sufficient to warrant field investi- gation or a large introductory campaign, the president desires to develop a foreign market for the company's products, in the liope that this development will serve to offset in part a recurrence of the experiences through EXPORT SALES METHODS 341 wliicli the company passed because of tlie sudden slump in domestic business in 1920 and 1921. Mr. Smith, one of the company's most intelligent and energetic young men who has been acting as assistant sales manager, has been asked to take charge of the de- velopment of foreign demand. In addition to his salary, the board of directors has decided that a maxinnnn of $2,500 per year for the first two years shall be set aside for dex'elopmental purposes, declaring that future de- velopmental work must come from the profits of the for- eign business itself. Mr. Smith has concluded that the small appropriation renders it impossible to employ salesmen and that he nmst therefore utilize direct-mail and other forms of advertising. After a study of the matter, he has come to the definite conclusion that, out- side of small space in the Spanish and Portuguese edi- tions of two American export journals intended for dis- tribution in South America, he should concentrate his appropriation upon a mail campaign. From one of the export journals and from other sources he has compiled a list of various classes of dealers who might handle optical goods in the Argentine. Upon these he intends to try out the campaign which he has outlined, consisting of from three to five letters. The first of his problems is to determine the order in which to present information and selling points, the description of his product, state- ments as to quality, exclusive advantages, prices, profit on resale, and dealer helps. He believes that, so long as he is cognizant of the necessity of accurate translation, careful checking will avoid translation errors. There are a number of other matters, however, in connection with the make-up of the letters for which he can find no very clear solution. Pie has been warned that the for- eigner should not be allowed to get the impression that any letter received is a form letter. The question arises as to whether this caution should lead him to the con- clusion that the results obtained from a much smaller number of individually written letters would be greater than those derived from a larger numl)er of form letters, which could be produced at a much smaller unit cost. 342 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 87 The Rodgers Machine Manufacturing Company— Catalogs for Foreign Trade Although the ooinplete line of Rodgers woodworking machines has been sold abroad for the past seventeen years, the Rodgers Machine Mannfacturing Company has never developed a catalog for nse in foreign trade. The company's tra^'elers in England, Latin America, Japan, and the Philippines, carry with them photographs of each machine and a full set of blueprints ; the agents through which the company sells its entire line of wood- working tools are similarly equipped. Reprints of the company's advertisements in the leading engineering journals have been sent occasionally to prospective cus- tomers, but, for the most part, the iirm has relied upon blueprints and the technical knowledge and sales ability of its travelers to develop its foreign business. As com- petitors, however, are increasing the use of catalogs in foreign trade, the Rodgers Company is considering a change of policy. The suggestion was made that the company should have a loose-leaf catalog so that as new models were added or changes made in the line, the catalog could be kept uj) to date with but little effort, and its life thus greatly increased. It w^ould be possible to economize still further by making up catalogs of loose leaves which w^ould not contain a description of the entire line, but would apply only to a customer's particular needs. A well bound, attractive catalog, on the other hand, would not so likely be thrown away after the customer had glanced through it ; it would present a more pleasing ap- pearance; and it would give the prospective customer a better idea of the complete line. The company has found, however, that especially in South America the inquiries for catalogs from readers of its advertisements fre- quently come from catalog collectors who are not pros- pective customers. Should the company decide to issue EXPORT SALES METHODS 343 a catalog, therefore, it Avill have a number of perplexing problems to solve. In the iirst place there is the question of what languag-es to use. Many firms publish their catalogs in the language of the country to which they are to be sent. This method requires that a number of different catalogs be translated, set up, and printed, in order to cover the languages of all the countries in which the product is sold. Furthermore, although Spanish is the native language of Chile, it is reported that the catalogs sent to this country are frequently in German, because of the large number of Germans who are master mechanics in the Chilean mills. In Sao Paulo, Brazil, and in the Ar- gentine, Italian is frequently spoken; in many of the other countries the people are frequently able to speak French. This situation has raised the question as to whether or not the company should restrict the publica- tion of its catalogs for the foreign field to English, French, and German, or include Spanish, Portuguese, Italian, and Japanese as well. Another difficulty is that of translation. After the catalog has been written in English it is comparatively easy to secure a literary translation into a foreign lan- guage. Frequently, however, ideas expressed in English do not convey the same meaning when translated into a foreign tongue for the benefit of people whose mode of thought is different from ours. That a machine is easily cleaned and is free from the danger of accidents are selling points which may appeal to an American but which may not make so strong an appeal to an Italian or Spaniard. It has been suggested that after the trans- lation has been made in the United States, proofs should be sent to the company 's travelers and customers abroad to sechre their criticisms and suggestions regarding changes, but such a step would mean delay in publication and would add considerably to the expense. Still another question which has arisen is whether the catalog should be printed in the country for which it is intended or in the United States. Most foreign printers, 341 PROBLEMS IN EXPORT SALES MANAGEMENT particularly those in Latin America, are reported as using cheap paper, poor inks, and as being inferior work- men, although they will frequently do the work at a lower rate than is charged in the United States. In order to encourage the native printing industry, most foreign countries have placed a heavy duty upon im- ported advertising and catalogs. Dealing with a printer several thousand miles away, however, has its disadvan- tages. The tariffs can sometimes be circumvented by shipping the catalogs in small lots on which no customs duty must be paid. Furthermore, in Brazil, it is stated that catalogs printed in Portuguese are admitted at com- paratively low rates. In order to link the name of the local dealer or agent with the name of the Rodgers Machine Manufacturing Company, the dealer's name should appear on the cata- log. If the stamping of this imprint is left to the dealer, the effect of a high-class catalog may be destroyed through the slovenly manner in which this work is done. On the other hand, if the dealer's imprint is made in the States a number of catalogs must be definitely allotted to each dealer, whether or not they are efficiently used. Because' of the unfamiliarity of foreign buyers with American machines, it is necessary that the catalog con- tain a more detailed description than is frequently neces- sary in the domestic market. In addition to describing the machine and the work it will do, it is frequently ad- visable to give the floor space required, the speeds and feeds, the horse-power used, the gross weight pack in pounds and kilos, and the cubical contents jjack in cubic feet and cubic meters. As the company has always c[Uoted its prices on the estimates of its travelers ap- proved by the export manager in the home office, no prices will appear in any catalog. In the past the com- pany has left all sales talk to be handled by its travelers and agents according to the situation in the customer's factory and the temperament of the man with whom they must deal; but if this policy is continued in the catalog, the com])aiiy would not imi)ress many i)rospective cus- tomers with the selling points of Rodgers machines. EXPORT SALES METHODS 345 Problem 88 Federated Paper Company — House Organ* The Federated Paper Company exports paper, print- ing macliinery, typewriters, typewriter supjilies, inks, pastes, and similar products. This company deals main- ly with Latin America, operating* branches in Argentina, Brazil, Chile, Peru, Mexico, and Cuba, and having exclu- sive agencies in most of the other South American coun- tries. Its goods are sold direct to printers, publishing houses, stationery dealers, and large consumers. Al- though the firm has advertised extensively in magazines and newsjDapers having a circulation in Latin America, it has not found that this form of publicity has been productive of the anticipated results. The class of peo- ple to be appealed to is limited, and there appears to be no magazine or periodical of proper standards and pres- tige circulating among paper and printing houses in all these countries. The Federated Paper Com^Dany is there- fore contemplating establishing a house organ to aid in bringing the name of the company and its products more effectively before its customers. If a house organ is established, it must be in the form of a high-class magazine in order to appeal to the print- ers, stationers, and other merchants who are connoisseurs of the printer's art. It is planned to have the magazine published monthly in Spanish and printed on high-grade paper, ^\'ith a durable brown art ])aper cover, each page being about 8V2 hy llMi inches in size. On about half of the thirty-six pages, which it is expected will con- stitute the magazine, will appear the advertising of the Federated Paper Company's products; in the other half of the periodical will be illustrated articles on the manu- facture of paper in the United States, other semi-techni- cal subjects of interest to paper merchants, publishing * Information upon the use of the house organ in foreign trade may be found in Cooper, Foreign Trade Markets a)ul Methods, Chap. XIII; Printers' Ink, M.-in-li 9, 1922, p. 137 — -"House Magazines to Supplement Advertising in Latiu-Amcrica" ; and Exjiurt Trade and Exporters' lie- view, Dec. 18, 1920, p. 12— "Editing an Effective House Organ." 346 PROBLEMS IN EXPORT SALES MANAGEMENT companies, and business houses handling typewriters, carbon paper, inks, pastes, fountain pens, and similar ar- ticles. Since this house organ is intended to appeal to the customers of the company rather than to the firm's o^vn employees, it will not be filled with personal and social items of interest only to the company's employees, as is the case in the ordinary house organ. The publication of a magazine of the type contemplated would be much more expensive than the monthly cir- cularization of the trade or the covering of the trade with personal letters at stated intervals. Some of the officials of the Federated Paper Company are skeptical as to the advertising value of a house^ organ as compared with other forms of publicity. They are of the opinion that in the United States, at least, house organs find their way into the waste-baskets fairly frequently and consequently favor advertising through circularization, motion pictures, and similar means. The question has also come up as to whether or not, if a house organ is published, it should be distributed free or a reasonable subscription price charged. Since no advertising would be published except that of the Federated Paper Company itself, one of the most profit- able sources of income enjoyed by most magazines would be lackiug. By charging $1.50 a year or 15c a copy, the company would not be able to come anywhere near put- ting the magazine on a paying basis, but this charge might make the magazine assume a more important place in the eyes of its readers, although such a policy would most assuredly cut down the numl)er of people who would receive the magazine and would "saddle" the company's salesmen with the prol)lem of securing sub- scriptions to the company's magazine as well as selling its products. Should the Federated Paper Company establish a house organ to appeal to its customers in Latin America? If so, should it be distributed free or should a nominal subscription price be charged! EXPORT SALES METHODS 347 Problem 89 VoLK Paint Company — Methods of Sales Stimulation It has frequently been said that much of the business in Latin America depends upon the friendship between the buyer and the seller. The foreign salesmen of the Volk Paint Company have been handicapped in this respect by their ne^^^less in the field and the length of time which usually elapses between their visits. The firm's foreign representatives say that local agents are able to cultivate a customer's friendship in the foreign business and that salesmen of rival lines which have been longer established have a tremendous advantage. Even after the firm's salesmen become better acquainted in the territory, they sometimes find when they call on a dealer that -his order for the season has already been given to a rival firm. The general manager has intimated that in his opinion the president of the Yolk Paint Company "has gotten off on the wrong foot entirely." According to this man's theory, long before the salesman has left the United States steps should be taken to prepare the market for his coming. About once a month, while the salesman is still at the home office, he should write personal letters to his customers to keep the Volk Company's products in their minds and to tell them that he is coming to their country. These tactics should be continued until just before the company's representative has sailed. Im- mediately upon his reaching the foreign port he should send another letter to each customer announcing his ar- rival and setting a date on which he expects to call upon him. In this manner customers are kept informed of the coming visit of the salesman and may be induced to with- hold placing an order until they have at least examined the company's new line. The general manager also said that he thought stay- ing at the best hotels helped to establish a salesman as a social equal in the eyes of his South American custom- 348 PROBLEMS IN EXPORT SALES MANAGEMENT ers much more than such a thing would establish him with customers in the domestic field. The entertaining of foreign customers by the salesman is also an important item, although this custom seems to have died out to a considerable extent in certain parts of the United States. Inquiries as to the Avelfare of a customer's family are always appreciated, and between the salesman's visits Christmas cards, seasonal remeimbrances, leather ad- dress books, and other favors help to build up the bond of friendship between the two, aid in keeping the sales- man in the customer's mind, and make the securing of orders easier and more certain. The president of the Volk Paint Company has taken violent exception to any such plan as that outlined by his general manager. Having had some experience as a salesman in the domestic market and having traveled in South America, his objections must not be cast aside without consideration. In the first place it is his plan to keep the salesman at work in the foreign field at all times except when he is home on vacation, during which period a short visit to the factory will be required, in order to keep him in touch Avitli the latest developments. He states that South America is reported as being flooded with circulars from German houses, as well as from firms in the United States, and it is his opinion that most of this circularization finds its way into the waste basket fully as cpiickly as it docs in this country. If the Volk Paint Company is to solicit business by correspond- ence, the president does not see why salesmen should be sent from the United States when order takers sent by the native nianufacinrei-s' agents, operating on a small commission basis, should be able to do the work just as well. As for enteiiaining, the continual sending of gifts, and the granting of favors, the president says that the company has found that this is the wrong way to do business in the domestic market and abandoned this policy several years ago. It is his opinion that if the salesmen of the Volk Paint Company are so inefficient that it is necessarv for the firm to buv business from EXPORT SALES METHODS 349 its South American customers, the company should either get out of the foreign field or else hire' more efficient salesmen. When pressed for an answer to the question of how the company should stimulate sales in South America, the president said that he favored the use of moving pictures in all principal cities.* At present the motion picture is the popular fad among Latin Ameri- cans, and where the percentage of ilhteracy is compara- tively high, it has the advantage of appeahng to everyone regardless of his ability to read an advertisement in a newspaper or other periodical. He also favored window demonstrations put on by salesmen as one of the surest means of attracting the attention of a large numl)er of potential customers. He proposed to use a limited amount of newspaper and circular advertising, and to this end advocated that all salesmen should study the popular forms of advertising in their territories in order to assist the company in "putting over" a successful advertising campaign. What methods of sales stimulation should the Volk Paint Company use to increase its orders in Latin America ? *Iu addition to Wyman, Export Merclwndising, the following refer- ences may be consulted: ^ Export Trade and Exporters' Review. April 19, 1919, p. 18--The Movies as a Foreign Selling Force " '^SsinS T^^-''-'^-^ ^^°^^- ^^^^*- Aid^n^Sn ''iLd^unu^'' ^- '-"^''''^^^ P-t-es as a Foreign Advertising 'tSi % ^I?n' P- J Oj-': Slide Advertising in Latin America." Sept. 3, 19J1, p. 04-" Another Feature of Slide Advertising." rroceedings of annual conventions, Xational Foreign Trade Council. "Plc£r^^/n ^^^-f Sr^^So^"-^-' ^- «^ the Motion Printers' Inlc. April 10, 1919, p. 117— "American Industrial Films Abroad." Journal of Commerce and Commercial Bulletin. May 14, 1921-- Moving Pictures as Business Promoter" 350 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 90 The Widlund Company — Selling or Leasing Textile Machinery ;The Widlund Company has always sold its spinning machines outright to foreign textile millsp refusing to lease or have machines operated on a royalty basis as is done sometimes, particularly in the shoe industry. (During the past year, however, sales have become more and more difficult to secure. A number of mills in South America, Europe, and the Far East have little money mth which to buy new machinery. Furthermore, the rate of exchange is against them in many instances. Sev- eral of the largest miJLs, therefore, propose that they lease new machines from the Widlund Company for a period of two years at a fair rate to be agreed upon by the two companies! (The Widlund Company has frequently sold its ma- chines on 90 or 120 days' credit and occasionally a good mill has been carried on open account for a full year. Once in a while a single machine has been installed for demonstration puriDosesJin order to give the mill mana- gers an opportunity to satisfy themselves as to the value and efficiency of Widlund machines. (Such a machine has sometimes been left as long as a year without any pay- ment being made by the textile mill. Leasing machines for a two-year period, however, would establish an en- tirely new precedent jwliich might prove troublesome in the future. Furthermore, [these mills do not agree to purchase the machines at the end of the two-year period, since their managers are not at all sure that exchange will have returned to normal or that their mills will be financially able to meet such an obligation at that time. If at the end of two years the foreign mill should refuse to renew the lease or purchase the machines, the Wid- lund Company would have a number of used machines on its hands in a foreign city a^ greatly depreciated value owing to their two years' use^, (Although the Widlund Company has managed to keep the nucleus of its factory organization together and is EXPORT SALES METHODS 351 m a sound financial position, by sociirino- more hnsinoss It oould oporato at oroator offici.'nev and lower cost Bv (oasiiio- iliosc machines the comi.any would bo introduc- ing Its product into a numl)or of I'oroio-n mills T\u^ rates of exchange are so much against many of the mill owners that they are absoluteh- unable to buy at the present time, but by leasing high-grade machines they might be assisted in strengthening the financial condition of the mills so that they could purchase the equipment outright at the end of two years. Furthermore, Is .! would afford the Widlund Company a source of income which would ottset the interest, insurance, warehouse ex- pense, and other carrying charges on these machines ^.hould the AVidlund Company accept the offer of the foreign nulls to lease machines for a period ,.f two years ^ Problem 91 The Mellor Milling Company-Long-time Credits VERSUS Shipping on Consignment (The Mellor Milling Company, Avhich has built up exten- siye sa es m the domestic market for the Eose brand of flour, plans o deyelop the sale of its product in England France, Belgium, Cuba, Central America, Colomb a Venezuela, Ha.vaii, and the Philippine Islands. S same me hod of selling through wholesalers will be used o tl rL'T" ir '""""!f"^ "^ "^^^^"^§- '^'' ^-^^ brand one market ^ l''-^ ^"f'' "^ ^"^"' "^ ^^'' United States maiket. Since it is evident to the company, however, that It cannot expect to sell a new brand of flour on terms of cash against documents in New York, it is con k™ iiig whe her to sell on long-time credits or sliip on on- It has been found by many manufacturers that im- porters frequently refuse to accept shipments of a new untned product except on a consignn.ent basis and he Me lor Company can scarcely expect different treatment Soiling on consignment the companv is able to have stocks in the foreign field when il is' ready to stai^'t advertising campaign. This method also enabe the 352 PROBLEMS IN EXPORT SALES MANAGEMENT company's salesmen to call on the retailers, bakers and restaurant keepers in company with the salesmen of the wholesaler. By cooperating with the wholesaler in this manner, his good-will is secured since he realizes that the company's goal is not to overload him with a largo stock of "Rose" flour but to assist him in securing as many sales as possible. By having large stocks shipped on a consignment basis, the Mellor Company insures that prompt service can be furnished immediately. AVhen the importer becomes convinced that there is a demand for the Rose brand, it will then be possible to induce him to order on his own account. The Mellor Company is convinced that in order to sell its Rose brand flour on a consignment basis, it must investigate competitive conditions and consignment pro- cedure in the different countries. It must make a thorough study of the market to be sure there is a poten- tial demand for this flour since because of the difference in the high cost of freight and insurance and the danger of spoilage, it would probably be impracticable to have shipments returned. It will also be necessary that the company make sure that the importer to whom a con- signment is sent possesses adequate storage facilities or spoilage is likely to result. It will also be necessary to make a complete investigation as to the character, cap- ital, and capability of the consignee in order to be sure that he be both able and willing to fulfill his obligations. In order to control stocks, a thorough understanding must be reached between the consignor and the consignee as to the obligations of each party to the agreement and arrangements must be made with the company's traveler or with a local public accountant to check and verify re- ports of sales, remittances, and claims of damaged ship- ments. In order to permit the conversion of the value of the flour into foreign currency and reconvert this value again into United States dollars, it will also be necessary to agree in advance on a flxed rate of exchange which can probably be adjusted from time to time as the rates of exchange are altered. EXPORT SALES METHODS 353 Several members of the firm objected to the shipping ot tiour on consignment on the grounds that if this amount of detail is required before consignments can sately be made, the company might as well sell on the basis of long-tmie credits. These men state that the com- pany must assume all the risk if the flour is shipped on a consig-iiment basis and that import houses frequentlv overs ock on consigned goods. Having no monev in'- vested in the shipment, the foreign wholesaler would have no inducement to push its sale. These men favor therefore, selling the Rose brand flour on long-time credit terms which will g^ ye the importer ample tiine to dispose of his stock but which will at the same time compel him ^o push their sale m order to meet his obligations when Problem 92 The Maddox Export Company-Dealing on Joint Account The Jraddox Export Company carries on a large for- in moT/nr'- " '"1 'T'^ ^'''"''''' °P"-««"S bi-anches W ""Portant countries of tlie world. Altlaough It bm. and sells products for its customers through the other branches or the home office of the company each branch ,s operated almost as a separate unit Lo'u. heM strict V to account for its share of the profits. The blanch manager can hire his own salesmen, make 1 is own o?rr:;:i,*vr''" ^^"'»" pi-— '"jeet'to th: z:z n inv nT;^ ' ''vl *'•' ^^^^''^'i^'^ed P^^ey of the com- adckwubv ';.,"! ' '" accordant with instructions mo t t. ? f ""• "'"^ "' "'■"'•* "P^'^t" ^'^ branch i'usres.s'! " "■'" "'' ''''"^' "* "" independent thJl,™!,"Vwl "V^'' U"'*^^ States for sale abroad, Ic oun' The f °'f °^r f'-^-l^e^tly deal on join account. The foreign branch estimates the amount of 851. PROBLEMS IN EXPORT SALES MANAGEMENT steel it can probably handle during a given period. The home organization then goes into the market at a time when it can buy the steel at the most favorable price and purchases this amount. In a changing market it is often possible to make additional profits by purchasing steel at the right time, and this system of dealing on joint account sometimes enables the company to send off a shipment at an earlier date than would otller^rise be pos- sible. The parent organization and its branch share in the losses or profits made on the joint account at the end of the period. The chief trouble with dealing on joint account is that it reduces the sense of responsibility of both the manager of the home office and the manager of the foreign branch, since each one feels that the responsibility for the trans- action belongs to the other. Tn case of losses, particu- larly, dealing on joint account is productive of disputes as to whether the transaction should have been put through or not and who was responsible for so doing. There are also frequent arguments as to which expenses should be charged to the branch, which expenses charged to the home office, and which expenses should be included in deductions from the joint account before a division of profits is made. How should the Maddox Export Company remedy the difficulties arising from dealing with its branches on joint account ? Problem 93 Cotton Braid Associates — Allocation of Orders AND Credit Losses in Export Association Having but recently been organized, the Cotton Braid Associates are confronted by many perplexing problems carrying on their export trade. This organization is com- posed of a number of manufacturers uniting as a cor- poration for the furthering of their interests abroad. EXPORT SALES METHODS 355 Their products immberiiig some 0,840 items consist chiefiy of cotton tape of all kinds, braid for decgrative purposes and for binding seams on women's suits and skirts, various forms of elastic, suspender and garter webbing, shoe laces, mercerized ribbons, thread, and darning cotton. Since these Associates manufacture lines which are so closely allied that frequently items overlap, these questions have arisen: How shall orders received by the Cotton Braid Asso- ciates for merchandise produced liy several different manufacturers be allocated I In view of the large number of separate items, a num- ber of which are identical or similar in nature, should any attempt be made to standardize and consolidate I If so, should each manufacturer be required to specialize on the product he is best adapted to produce, or should he be allowed to manufacture any article he sees fit? Would it be advisable to attempt to introduce these products in foreign lields by the sample method, or should descriptive catalogs be used? If one manufacturer's goods are ordered in preference to another's, should this manufacturer be compelled to stand the loss alone, in case of the customer's failure to pay, or should all credit losses be divided equally among all the Associates? The Cotton Braid Associates was formed for the pur- pose of standardizing selling expenses, developing new markets, and increasing the volume of sales of each member. Its primary object is to present and deliver merchandise to foreign customers direct from the sources of production at the lowest possible price. The complete line of goods produced by the Associates is so varied that a foreign customer can secure practically any kind of braid or allied article that he desires from this one selling organization. The corporation's o^nl salesmen call on the trade, but it is planned to have local representatives in each large city who will be in a position to take orders at any time. All questions of credit are to be handled by the New York office of the Cotton Braid Associates. 356 PROBLEMS IN EXPORT SALES MANAGEMENT It has been proposed that where several lines overlap all orders should be divided equally among the members of the corporation, but objections have been raised to this plan on the grounds that most of these goods are branded and that if a customer receives one brand one time he is likely to desire the same brand the next time. It might be possible to scatter the small orders among the different maimfacturers, but a large order must be di- vided in order to give each his proi)er share. It is prob- able that a customer will object to the slightly varying finishes and the different brands, since if he is making up a lot of suits according to one pattern lie will probably want the same brand of findings for all. It has been suggested that all manufacturers should pool their foreign profits on the duplicate lines and that the pool should bo divided equally among all the Asso- ciates. Some of the members of the corporation have more efficient methods and operate on a lower cost basis than others. There is no uniform method of accounting for all the nulls, so that an item such as interest on capi- tal owned might be considered as a cost l)y one mill and not by another. Under this plan a mill might do very little export work, devoting its efforts to building up its domestic trade, yet it would share in the prosperity of all the other members. Leaving the allocation of orders to the selection of the customer has also been proposed. A catalog picturing the goods and describing their uses or actual samples of the goods themselves would be submitted to each cus- tomer. The salesmen would show no preference, leaving it to the customer to select the merchandise he prefers. In this manner each com^Dany would receive only those orders to which it was justly entitled through the choice of its customers. But under this arrangement a sales- man would become a mere order-taker; he would not be allowed to push the sale of any one article nor use ag- gressive selling methods, since by doing so he would be showing partiality to one manufacturer's line. It is doubtful if a really efficient salesman could be induced to adopt such passive tactics. EXPORT SALES METHODS 357 In this connection it has been sug-gested that since transportation is difficult, particularly in many parts of Latin America, the cost of having each salesman carry a sufficient number of trunks to accommodate 3,840 sam- ples would be too high. It is suggested that illustrated catalogs should be published instead, showing each article in its natural colors, accompanied by a complete description. It would be possible to distribute such a catalog to large customers, thereby helping the sales- men in introducing the lines. In many parts of Latin America, however, the people are not familiar with these articles and it is prob&ble that they will prefer to see samples of the goods and feel the weight of the different grades, rather than order from reproductions. From the standpoint of the foreign sales force the most desirable thing would be to have the Associates standard- ize their products so that there would be no duplicates or possibilities of ill-will aroused among the members of the corporation over internal competition. By having each manufacturer sj^ecialize on the product which he is best fitted to produce, the maximum amount of benefit to foreign trade should be secured by each individual firm. It is probable that this plan would be difficult to put into practice, since in the domestic markets these manufacturers are to a certain extent competitors. Each firm has its own clientele and has spent considerable money in establishing its trade-mark and developing good-will. Each company would be averse to giving up the manufacture of the few items on which it con- flicted with other Associates; but by showing each firm that its sale of duplicate items was so small as scarcely to pay for the printing of its description in the catalog, it might be possible to induce it to follow the ad\ice of the export manager of the corporation and to standardize and consolidate all products of the members at least with regard to the foi'eign field. In connection with the allocation of bad debts the corporation is in a quandary. It might be arranged to have each company assume the credit losses arising out 358 PROBLEMS IN EXPORT SALES MANAGEMENT of its own orders; but although each customer has the right to select his o^\^l merchandise, the merchandise it- self can scarcely be held responsible for the failure of the customer to pay his bill. It might be possible to charge off all credit losses equally among the members of the corporation since each holds the same amount of stock. However, if one Associate has competed with another for an order and has lost, he can scarcely be expected to be willing to assume payment of a part of the credit loss incurred on this order. CHAPTER VIII MANAGEMENT OF EXPORT SALES FORCE THE exporter, who plans to use personal salesman- ship in developing or working foreign markets, soon learns that he must meet all the problems presented by his domestic sales force and under more difficult conditions than in the domestic market. Difficult as are the problems of selection and management at home, they would seem insuperable if firms employed salesmen in export fields as frequently as in domestic fields. The export manager must first of all decide what type of salesman he wishes to employ. The usual type of export salesman is one who operates as a sales represen- tative of only one house, but there are a number of so- called "combination salesmen" who represent more than one concern. Frequently these combination salesmen handle allied lines; and in so far as they handle alhed lines covering a fairly narrow range of non-competing products, the economy in their employment may not be more than offset by the difficulty of the salesmen in repre- senting the interests of half a dozen or more houses. Ex- port salesmen, who can satisfactorily represent a single house, are hard to find. Combination salesmen represent- ing a number of houses are correspondingly more diffi- cult to secure. Usually the initiative in the employment of combination salesmen comes from the salesman him- self, who finds manufacturers to cooperate in his employ- ment. On such a basis he must, therefore, devote consid- erable time and energy to selling himself to the various firms and in keeping each firm satisfied that he is oc- cupying a sufficient portion of his time in the representa- tion of its interests. 359 3G0 PROBLEMS IN EXPORT SALES MANAGEMENT Having determined upon the type of export salesman, the export manager must attempt to form some definite basis for his selection. He must determine the qualifiea- tions which are essential and the additional desirable qualifications. He will find few candidates who satisfy his desires. He must, therefore, determine which quali- fications he can dispense with or can develop by training. The selection of salesmen from among the candidates secured for particular positions is a problem which tests the judgment of the export manager as an organizer. As yet very few aids have lieen developed for the export manager in tlie selection of men, and most export sales- men in the successful sales force have been selected by a process of "trial and error." Since candidates for export selling positions ordinarily do not have the type of experience or the qualities which are necessary for greatest success with a particular firm, the need arises of supplementing such qualities and qualifications by training, either informally under the tutelage of the ex- port manager or by means of a formal course in which candidates are grouped under a developed training- scheme. When trained and sent into the field, the sales- man presents the whole range of personnel problems re- garding compensation, supervision and control, all of which are complicated l)y the greater field of action which must be accorded him as compared to the domestic sales- man. While in the export market an attempt is made to compensate for the difficulty of control by selecting a higher class of man needing less control, every export manager will confess that more detailed knowledge and closer control would be desirable if it could be secured without disadvantage. The problems in connection with the export sales force are indicated in more detail in the following outhne: EXPORT SALES FORCE 361 A. Selection of Export Salesmen. 1. Qualifications. What are the necessaiy qualifications for the export sales- man ? Is knowledge of foreign languages essential? Do the prerequisites for success of the export salesman differ in kind or degree from those of the domestic sales- man ? Do the desii-able characteristics of a combination salesman coincide with those of a salesman carrying the line of only one manufacturer f How do the qualifications of a successful salesman differ according to the type of customer visited .' The type of product sold? The market visited? Should the salesman he chosen because of his knowledge of the line or of the market, or because of his person- ality? In what degree should he combine these three de- sirable points? What age, inclinations, family ties, education, special trai]iing, and experience are most to be desired in the candidate for a given position ? 2. Methods of selection. Should interview's, successive interviews, application blanks, psychological tests, or a combination of these be used in the selection of export salesmen? Should candidates be sought in foreign branches, in col- leges, in the concern 's domestic sales department or fac- tory, through advertisements in periodicals, through the government agencies, or from other sources ? l.nder what circumstances should native salesmen of for- eign countries be employed ? How should they be chosen ? B. Training of Export Salesmen. 1. Advantages and disadvantages of specialized training for foreign salesmen. i}62 PROBLEMS IN EXPORT SALES MANAGEMENT Is training' necessary for experienced export salesmen, provided they have (a) sold similar lines; (b) visited the particidar foreign market; (c) been engaged in selling different lines, but reaching the same classes of dealers? Under what conditions is it advisable to establish a special school for training- salesmen for foreign trade ? What are the advantages and disadvantages of the types of training required by representative concerns? 2. Training courses for export salesmen. If it is decided to establish a training course, in what sub- jects should training be given ? What should be the length of the course ? What arrangements should be made as to payment of can- didates during the period of instruction? How should the course be financed ? Should the course be open to old salesmen as well as to new recruits to the export sales force? Should the concern attempt to bring foreign salesmen to the manufacturing plant or not? Should salesmen be trained with the idea that they will later become branch managers, export managers, etc.? C. Compensation of Sales Force. 1. Salary plan. What are the advantages and disadvantages of the salary plan of compensation for export salesmen ? To what extent is its use dependent upon the customs of other firms in the same line ; upon the nature of the busi- ness ; upon the financial resources of the individual con- cern ; upon the character of the export salesman ? o Commission plans. How does the length of time that the salesman has been employed by the concern affect the advisability of the commission form of payment? EXPORT SALES FORCE 363 How should export salesmen's expenses be managed? To what extent do they offer greater complications than in the case of domestic salesmen? 3. Combinations of salary and commission plans — bonus plans. To what extent are bonus, profit-sharing, and other plans successful as a means of securing the best efforts of ex- poi't salesmen? D. Management and Supervision of Sales Force. 1, Equipment. How should the export salesman be equipped with regard to portfolios, samples, models, advertising material, cata- logues, personal equipment? Should the export salesman be equipped with written references which will give him entree into homes and clubs as well as into business establishments? Under what conditions is it extremely advisable to give him a power of attorney? What equipment should be provided the export sales- man in the form of monej^, trade lists, price lists, route lists, and the like ? 2. Supervision and control. (a) Reports of salesmen — types of reports and methods of handling. What reports should be required of export salesmen ? To whom should reports be sent? How sliould they be handled at headquarters? Should reports contain verification of names on prospect list, additional names, credit information, general in- formation on business conditions? What else? (b) Expense accounts — policy and methods of supervision. Should the export salesman be held to definite amounts or should expenditures be subsidiary to results? 364 PROBLEMS IN EXPORT SALES MANAGEMENT What should be the nature and frequency of expense re- ports 1 3. Cooperation of sales department Avith sales force. (a) Methods of cooperation with salesmen in the field. What methods of cooperation between the home office and export salesmen are useful to a particular concern? To what extent are house organs and "pep" letters of value in the case of the foreign traveler? What are the essential characteristics of successful co- operation between export salesmen and the house? (b) Securing cooperation of salesmen. How can the cooperation of salesmen in regard to adver- tising be secured? To what extent can Ihe export salesman be expected to assist the export department in the distribution of dealer helps ? How can the export salesman aid the other departnuMits at the plant — production, financial, credit, etc. ? 4. Stimulation of sales force — methods applicable to export selling. How does the value of sales contests in the foreign field compare with the value among domestic salesmen? What are the difficulties of staging contests among ex- port travelers? How often should export salesmen visit the home office? Is it advisable to specify stated intervals when export salesmen shall visit the plant and meet other export and domestic salesmen? Is it advisable to liold district con- ventions in the foreign field ? What method should be used to bring the branch managers in the foreign field in contact with export salesmen ? EXPORT SALES FORCE 365 . Problem 94 Eastern Export Managers' Association — Qualifications of Export Salesmen* Many export managers have attempted to establish standard qnalifications which would aid them in select- ing foreign salesmen, but their opinions have varied so greatly that the Eastern Export Managers' Association *General references upon employment methods, sueli as Metealf and Tead, Personal Administration, and Shefferman, Employment Methods, while applicable are of little help in the problem of selecting export salesmen. Upon the qualifications and methods of selection of export salesmen there are numerous brief references such as Hough, Practical Exporting, pages 159, 160, 164 and 171; Wyman, Export Merchandising ; and the following articles: Export Trade and Exporters' Beview. Jan. 8, 1921, p. 10 — "English and Foreign Sales." July 23, 1921, p. 16 — "A Salesman's Observations in Mexico." Jan. 7, 1922, p. 5 — "The Man They Sent to Mexico." Jan. 14, 1922, p. n — ' ' The Export Traveler 's Social Side. ' ' Journal of Commerce and Commercial Bulletin. Feb. 6, 1920 — "Wants Americans Trained in China." Proceedings of annual conventions, National Foreign Trade Council. 1920, p. 597, W. P. F. Ayer — "The Selection and Training of Foreign Salesmen." Printers' Ink. May 16, 19] 8, p. 65— "The Salesman's Qualifications for Chinese Trade. ' ' Nov. 7, 1918, p. 63 — "The New Foreign Eepresentative. " Apr. 10, 1919, p. 169 — "Can Your Salesmen Meet the Competition of Those from England and France?" Sept. 2, 1920, p. 125 — "First Hand Advice to Salesmen in Latin America, ' ' Sales Management. April 1920, p. 263 — "Before You Send a Man to England." The World's Markets. June 1919, p. 30— "Americans of Foreign Birth as Export Sales- men. ' ' Mar. 1920, p. 43— "The Need for Export Salesmen." Sept. 1920, p. 35 — "Practical Exporting." Oct. 1920, p. 31 — "Practical Exporting." June 1921, p. 33— "How to Build Foreign Sales." The methods of selection used for domestic salesmen are generally used as well in the selection of foreign salesmen, but as yet no important attempt has been made to use psychological tests in the selection of men for the export department. A study of the application of psychological tests to the selection of salesmen has been carried on for some time by the Carnegie Institute of Technology. 3(56 PROBLEMS IN EXPORT SALES MANAGEMENT has appointed a committee to draw up a set of standard qualifications. This committee has agreed that no sales- men, whether domestic or foreign, can approach one hun- dred per cent eflSciency without : Poise Optimism Diplomacy Tact Good business judgment Ability to size up business and personal relations and conditions Ability to make profits Good habits Good appearance Good personality In addition, the committee has agreed that the follow- ing qualifications should be possessed by a foreign rep- resentative in order that he may secure a full measure of success in the market in which he is operating: Maturity of age and stability of character Inclination to reside abroad Full and complete knowledge of the line General knowledge of export conditions and practices Knowledge of the language Adaptability in the broadest sense Credit sense Character Many export managers, however, say that it is usually impossible to find all these qualifications fully developed in any one man. They have asked the committee, there- fore, to list these qualifications in order of their im- portance, giving a definite value or weight to each. The committee has made the following explanations of the qualifications it advocates for foreign salesmen : Maturity of Age. A man of twenty-eight or thirty years usually has had sufficient experience to enable him EXPORT SALES FORCE 367 to guard himself against the pitfalls and temptations in most foreign lands. Stability of character, if it is to come at all, will he possessed by a man of this age. It can he reasonably expected that snch a man will be able to pass by the seamy side of foreign cities and devote his time and attention to the furthering of the sale of hi< product. In a nunil)er of instances which the connnittee investigated it was found that young men who had been sent to Latin-American countries or other foreign mar- kets without family ties or other responsibilities such as they wouhl have at home, had committed indiscretions which they would not have done had they been able to judge results both to themselves and to the company. The committee beheves tliat any company sending a man into the foreign liekl should see to it that he is qualilied against the conditions which he is sure to meet, by mature judgment whicli can seldom be found in men of k»ss than twenty-eight or thirty yeai's of age. Inclination to reside abroad. One of the biggest diffi- culties in developing a foreign sales organization com- posed of Americans is the tendency of American young men to stay in the United States. One of the secrets of the success of German, Scotch, and English firms in the development of their foreign business has been greater success in inducing their salesmen to reside in and make their homes in foreign countries. These foreign salesmen often become more or less permanent citizens of the country of their adoption. Unless American sales- men are willing to reside abroad and come so closelj^ in contact with the foreign merchants that American ideals and policies become known to them, w^e cannot expect that a house can build up a permanent foreign business w^th the most favorable results. Fidl and complete hnoivledge of the line. In the United States many sales representatives are not so familiar with their product as they should be, but they are able to operate successfully because of their proximity to head- quarters where information can be readily secured by 368 PROBLEMS IN EXPORT SALES MANAGEMENT mail or tolephoiio. In the foroign markets a representa- tive does not have this advantage, and he should be able to give the foreign merchant all necessary data pertain- ing to his line and its adaptability to the foreign country. In addition, he should be thoroughly acquainted with con- ditions in the United States industrially, socially, and politically, so that he may become a real ambassador of the American manufacturer and a visitor who is respected and welcomed by foreign customers. Gpyieral knowledge of export conditions and practices. Foreign business is quite different from the domestic business in many ways and without a general knowledge of export conditions and practices a foreign salesman will not be equipped to handle the business satisfactorily to either his customer or his principal. For example, in Chile, it is required by law that all packages be stencilled instead of being marked with a brush or otherwise. Unless the salesman makes this notation on the order, the manufacturer at home might unknowingly commit a blunder in marking export shipments, thus entailing a fine upon the importer which would in turn react upon the manufacturer. Knowledge of flic language. Although a knowledge or the language of the country in w^hich a foreign represent- ative is to operate is of great importance and will un- doubtedly be of help in selling merchandise, the com- mittee does not believe that men should be sent to the foreign field mainly because of this knowledge. In many countries the importer speaks three or four different lan- guages. A representative going to South America should be able to secure sufficient knowledge of Spanish in six months' study to enable him to become sufficiently pro- ficient, after he has spent six months in South America, to converse and li'aiisact liis Imsiness. AdaptaJ)iUfg in its broadest sense. A man must have the faculty of grasping quickly what is expected of him, no matter where he is located. He must be able to size up his customers' habits and to drop the ways of EXPORT SALES FORCE 369 average American salesmen and conform with the re- quirements existing in the foreign .land. The hustling American salesman Avho goes to Rio de Janeiro and expects to clean up the city in three or four days' time in the same manner that he would Cleveland or Chicago, is frequently unsuccessful; whereas a competitor who is satisfied to go to the same }ilace and spend sufficient time in social intercourse to build up friendships with the native buyers succeeds in sending home more busi- ness. Credit sense. The man who can definitely and accu- rately size up a ci-cdit risk in a foreign land is the one who will be the most successful as a foreign represent- ative. There is something besides the actual selling of goods abroad and that is to secure the money for them after they are sold. In the United States it is possible to secure reliable credit records on customers. Abroad, however, because of the different conditions under which business is carried on, credit reports cannot be relied upon to the same extent. A foreign salesman's rec- ommendations, therefore, based on good credit sense assist in making a clean financial slate for the export department. Character. ]\[any men who have traveled abroad have been so interested in the immediate order to be secured that they have sometimes gone so far as to misrepresent conditions. The man with high character and ideals Avould not stoop to a policy of this kind, which is detri- mental not only to himself and his principal but also to the great mass of American manufacturers. Should any other qualifications be added to this list! In what order should these qualifications be listed to show their importance, and what method of weighing each qualification should the committee adopt? 370 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 95 Jefferson Automohile Company — Selection of Salesmen The Jefferson Automobile Company is attempting to secure better methods for the selection of its foreign salesmen. In the past the company has followed no def- inite policy ; occasionally men have been selected with no social training, who did not even possess the proper eve- ning clothes to permit them to enter into the social activi- ties of their customers. In a number of instances, after time and money have been spent in training a man for export work, upon actual trial he has proved to be a fail- ure. Not only does the company ^visli to secure high- grade men, but it also wishes to secure them with the least expenditure of time and effort on the part of the rest of the executives. A desirable foreign salesman is ordinarily a high- priced man who cannot be employed for less than from $3000 to $5000 a year* and expenses, depending usually upon whether he is single or married. Since a sales- man's expenses frequently equal or exceed his salary, a foreign salesman costs the company from $6000 to $10,- 000 a year or roughly from $20 to $35 a day. In the South American field, where the Jefferson Company transacts most of its foreign business, the salesmen must be able to speak Spanish as well as English, irrespective of the fact that the managers of most foreign houses fre- quently speak English. Since clerks and other employees usually transact" all business in Spanish, salesmen must be able to converse with them if thej' expect to secure the maximum amount of business. The records of the Jeffer- son Company show that if a foreign salesman does not *The expense of maintaining salesmen in the foreign field is increased by the necessity of paying license fees required in many foreign countries for salesmen. These licenses vary from small sums to very considerable amounts — to as much as $500 or $1,000 per year. The regulations re- garding export salesmen prevailing in any country may be secured cur- rently from the Bureau of Foreign and Domestic Commerce. The types of regulations are shown in Savay, Principles of Foreign Trade, Chap. XLI. EXPORT SALES FORCE 371 speak Spanish, lie is of but little use to the company for at least three years ; even if he does speak this language but has not been in the district before, he cannot be expected to produce orders on a profitable basis for a year and a half. For these reasons the company's salesmen are usually sent abroad under contract for never less than two nor more than three years. The company plans to give all foreign salesmen six months' instruction in the methods of manufacturing and selling the product as well as in the policies of the com- pany. Each man is also to study the language of the country to which he expects to be sent. It has been suggested, however, that although this course might be of help to the company in educating its foreign represent- atives and in weeding out undesirable salesmen who might have shpped by any preliminary method of selec- tion, the company has no means of determining a man's social qualifications, notwithstanding the fact that they constitute one of the most important aids a salesman sometimes has at his disposal. In Latin America a sales- man is frequently entertained in the homes of his cus- tomers and it is therefore advisable that the export man- ager and president of the firm entertain him in their homes in order to judge of his social qualifications. In case a salesman is married and expects to take his wife abroad, she too should be invited in order to ascertain whether or not she is socially equipped to assist her husband in making the most of his possibilities in the Latin American field. Although it is obvious that all applicants cannot be entertained indiscriminately, yet if a man's social qualifications are not determined before he is placed in the training course, much time may be wasted in educating a man who is not a desirable repre- sentative of the Jefferson Company. When vacancies occur in its domestic sales force the Jefferson Company advertises in the local papers in whatever city the vacancy has occurred. These adver- tisements explain the nature of the position in detail in order to give the applicant an idea of what is expected 372 PROBLEMS IN EXPORT SALES MANAGEMENT of hini and also to save the time of the sales manager by preventing the sending in of applications from men who do not fully understand the nature and duties of the position. These advertisements do not give the com- pany's address, but advise the applicant to send a postal to the newspaper office for an application blank. Many undesirables are frequently eliminated through their unwillingness to go to the trouble of filling out such a blank; others are weeded out after their application blanks have been received by the company. In this man- ner the number of men to be interviewed by the sales manager for final selection is reduced to three or four for each vacancy. The chief objection made to this method is that it is haphazard since, except during a depression, high-grade men suitable for foreign work are not inclined to apply for positions through "want ads" appearing in local papers. The policy followed by some companies is to select young men to till the clerical and routine positions with a view to their future possibilities as foreign salesmen. These men must have had at least two or three years of high school training and must be citizens of the United States. The several years of training secured in working about the plant or office of the company before the men are selected for the foreign field is highly desirable. The right type of young men, however, is difficult to secure since much of the clerical work is performed by. girls who can be retained at lower cost ; and many young men with a high school education refuse to work in factories, preferring to become office workers or salesmen. Fur- thermore, when the demand arieps* for men to be sent abroad there is usually a demand for men for other parts of the organization because of the increased amount of business, and it has sometimes been difficult for the export department to secure the men it needed. During the past year the export manager of the Jeffer- son Company has made a number of trips to colleges and other institutions to secure young men ^^dth a higher educational training for his organization. Although these EXPORT SALES FORCE 373 trips have consumed a great deal of the export manager's time, his interviews mth prospective salesmen have fre- quently been hasty and have not always resulted in the hiring of satisfactory employees. A number of colleges and universities, however, are giving instruction in the phases of foreign trade and it is possible that desirable material could be secured from this source if proper methods of selection are utilized. Most young salesmen, whether coming from colleges or from the company's o^\^l organization, are quick to learn, have but little hesitancy in serving their appren- ticeship both in the factory and on the road, have few preconceived ideas of how the business should be con- ducted, and can be trained to follow the methods laid down by the company. They are usually full of enthusi- asm, filled with the love for adventure, are not over- critical, become acclimated easily, and sometimes like the foreign country so well that they are willing to reside there permanently. On the other hand many young salesmen are impulsive and lack mature judgment; they sometimes become discouraged because of the bad food and poor conditions under which they frequently must live and the difiiculties and hard knocks incident to intro- ducing a new line in a foreign field. Occasionally they lack the character to resist the bribes offered by rival companies if they will keep away from important dealers, or because of their lack of understanding of the for- eigner's point of view they may lose customers. Because of their immature judgment and lack of home ties young men are sometimes prone to fall prey to the dissipations prevalent in a foreign country. Being forced to spend a holiday or week-end in a small fpreign city the only companionship open to them is at the gam- bling table or with disreputable women who frequent the hotels and cafes. As the export manager of the Jeffer- son Company explained the situation: "It is not our purpose to censor their morals or interfere with the personal freedom of our salesmen; it is simply a matter of business. If one of our foreign salesmen takes to 37i PROBLEMS IN EXPORT SALES MANAGEMENT ,i»-ambliiig, his losses are frequently reflected in a padded expense account;. if he accepts the other forms of dissi- pation open to him, his effectiveness as a salesman is lessened, and in either case he must usually be replaced." Another method is to select men about thirty -five years of age, who possess more mature judgment and who are better able to pass by the pitfalls and temptations offered by the seamy side of life in foreign cities. These men are more seasoned and dependable and are not so prone to discouragement ; their character is more fully developed ; they are less impatient and possess more tact and expe- rience in dealing with other j^eople. A man who possesses these qualifications to a marked degree, however, usually has a good position at thirty-five which he is loath to leave ; he has often developed preconceived ideas of how to carry on his foreign business and might object to fol- lowing all of the policies of the company. Unless he is already able to speak the language, it is difficult for him to learn to speak it without a noticeable accent. Fre- quently it is difficult for him to become acclimated or accustomed to foreign methods of doing business. Since men of this age ordinarily are married or have home ties that make them unwilling to reside permanently abroad, it might be difficult for the company to Imild up a per- manent sales force with older men. Problem 96 The Hi.sH Oir. Company — Application Blanks for Export Salesmen ■"■ When Mr. Xash was first eni[)l()yt'd as foreign sales managei- by the Rush Oil Ccmipany he was already past middle age and did not look with favor on new methods. He fre(|uently made the statement that salesmen were *Aii iiitcicstiii};- sories of oxporimciits in the appraisal of application blanks filled out l)y candidates for salesmen's positions is described in au article in tlie Jan. 19l2'J issne of Sales Manafjomoit, entitled "A Grading System for I'ickinjj Men." EXPORT SALES FORCE 375 bom and not made and that he could tell in five minutes whether or not a man would make good in the foreign field; consequently he has interviewed and selected his salesmen personally, refusing to delegate this function. Because of his strong personality, thorough knowledge of the foreign field, and shrewd judgment, Mr. Nash has made a success as export manager. The Rush Oil Company has salesmen in most of the countries of Europe and South America, and in Japan, China, and India in the Far East. This firm sells dif- ferent grades of mineral oil for lubrication purposes both in the United States and abroad. Its product varies from the fine oils used in watches and delicate labora- tory equipment to the heaviest cylinder oils used in large gasoline engines ; consequently in selecting salesmen Mr. Nash has usually chosen those who have some knowledge of machinery and the practical use of lubricating oils. As a rule preference has been given to native Americans because the directors of the company prefer to have Americans represent them abroad. Single men have usually been selected rather than married men because they are able to live in a foreign country on a lower salary than a man with a family. Mr. Nash has also been par- ticular to employ only men in good health, since when he has not insisted on this point he has usually found that the applicant could not stand the rigors and hardships incident to travelling abroad. A sick salesman in the for- eign field is a heavy expense to a company with no returns being received for the money expended. Mr. Nash has also chosen, as a rule, the men with a college education particularly if they have studied economics or engineer- ing, or other practical courses which might be of value in a commercial way. Men without a college training, who have spent some time in a commercial or trade school, have also been considered desirable. Since each salesman is employed in the New York office of the Rush Oil Company for from six months to a year before being sent abroad, a knowledge of typewriting and office rou- tine is frequently valuable. During this time it is possi- 376 PROBLEMS IN EXPORT SALES MANAGEMENT ble for him to secure a smattering of a foreign language, but as a rule the company prefers to hire men who already are more or less familiar with the language of the country to which they are being sent. Mr. Nash is about to retire because of ill health, and his assistant, Mr. Holden, is to succeed him. Mr. Holden is not satisfied with the present method of hiring salesmen, and he has decided to introduce the use of application blanks in order to standardize the information of each applicant, to save time by eliminating the asking of rout- ing questions in interviews, and to cut down the number of interviews by rejecting the more undesirable appli- cants after making a study of their application blanks. In accordance with his request the following application blanks have been submitted by two members of the export staff, but Mr. Holden is not sure which one should be chosen as best fitted to the needs of the Rush Oil Com- pany or what modifications, if any, should be made in the blank which is chosen. A. APPLICATION FOR EMPLOYMENT Applicants are requested to read the entire blank through first before filling in, as answers should be complete and in own hand writing. A satisfactory introduction or identification must be presented by all applicants. A small unmounted photograph, if available or easily secured, will prove helpful in considering the application. The privilege of filing an application does not imply eventual appointment but that careful thought will be given to it when a vacanc}^ occurs. All persons appointed to positions in this company are on trial for a period of three months, and if at any time during that pe- riod it is found that the employee is not adapted to the work of the company or is not likely to prove useful, the engagement may be terminated without further reason or prejudice to the employee's reputation. Date . Name in Full Residence Address Telephone-^ (Street and Number) City or l*ost Office State EXPORT SALES FORCE 377 Permanent Address (if any). Introduced by. (Preferably someone known to the firm) If not introduced, state how you eame to apply Position desired (Be specific, and if possible state ultimate aim) What is the lowest salary you will accept? State what special qualifications or talents you possess, if any. which you think would fit you for the business carried on by this Concern : (Continue over) This is not to he filled in hjj Applicant. EngajLttLi}:sf-^yj/.'CC^ Bom at 71ju^ fn^ GSSiZ "'^Skcs^-Ji-'^ J i.mo Aa/gT" Slate whelher SinfHe, Mamt^. Widost^ or Pivonrtl. 9^JJ«^<_ru^ln^<^ How many are dependent spon you? iS-uu^^ Whal Salary do you expea'^^ V fftrO 1^ 3ir? ac^jLue^./v.y j 6>^^.0«A*3»-<^ «^.«A ^p?/7 c^l^*/ c£^*«ee n^^uAa lU^ *>-gsj-«.>3.^ 13»*fe^.>f« Are you a gnrfuate of any Hik'h School or Collie Are you a regular Church Attendani ' 0( whar Nationaiiiy are your Parents' Father Whai languages do you speak > ^2>t-**«--t*4 «i^ ^c*--o>o-^ What languages do you wnte' ^^^«««t^ cx*Ul i>)o....o^ •eqiifeied to resigi y\st^^ u^ ^jLa^ 3 resign from any s i Bond ? ifi „ - lA^e Have you ever been dismisseo or i I( so. where, when and cause ol di Are you able lo give personal Gua Have you previously been bonded '' l//>^ Personal or Guarantee Are you ai present in good health ' ' ti-t*. Have you dunng recent years had any protracted illness? '>Lo H so. give State any special qualifications you may possess which you think will enable us to (orm M'»~o~iu Ji^^u^eJl X<^**^ WA-^.c^ **^ lA^je^^^fija, fitness lor the p-Aition applied for crf tiU. 6. hf. 0'g^..„...j^ 5)cur^ (Pxvtrfti tZyije*., (?■ t^^Tjtaxjg.t^.^^ tA~>gSp7i.^V^ Wov^. ^frj^t-.,. iMa ^-<»-£tA C^-. if.yc. zi<^iRB« 7;.iitja( svsiui. G=. S^jyA-<>e^ S-«^«'».>v-gjt S-«>^^ C3u^^B^lkA^ FORM 6. Elden Manufacturing Company— Application No. 1 386 PROBLEMS IN EXPORT SALES MANAGEMENT value ill the New York office is not even that of a high- grade clerical worker and after he has been sent to the foreign field substantial returns from his efforts cannot be expected for another six or twelve-month period. The company has no definite wage scale upon which to base a beginner's pay, each man being paid according to his abihty and experience. Although the question of a low salary is important, ability is of even greater importance and is usually given the deciding weight. Seven men QUCfTIONi Present / fS. I ]'(ttff-^'^^ j^!~;^fc^%^ Name m full »^'U&'»v/ Bo™ >\.,.^U^AjJ^,iZi^-^~c-^ ""xjd^Uki^/ci/S *?' AeeTtuM^~ftA^ I74i.l^ ^^'._/*.»* -"—^ M^7?f^. •iae II*' ^J.*£l ^U^iJU^^, ^^'f-ttfa^ i £ZAMA£i-'->^ aUiuAf rif /9ju ^!<^>t.MCt/.><^<^.--w-<'«««<' Eo I /^I^rt^fei/, "hta-a-d^ wux, 7u xTu^ftty e'^. Are you a (rri''u3le of any Hinh School or Cnlkfte Are you a repular Church Altfnuant -■ "7^ 01 what Nationality are your Parentt' Father^,^:^,,,.^^^ Whal languages do you speak * ^,Aja,,^.rf«...^,^ What languages do you write? — "" H*ve you ever been dismissed or requested to resign (rom ; If BO, where, when and cause o( dtsmiv^l ? — "" Are you able to give personal Guarantee Bond ? x^^i*^ Have you previously been bonded? /l^ (/ Are you at present in good health ' X^/i£,d-^ Have you during recent years had any protractfd illness '^-^S^^tfrfx* State any special qualifications you may posst-ss which you tnink will e and location of Inst: Mother S.— ,.^«-, (Syjttkb-^^ 'h\.,uui XoM" jSjLt^^jdzz^ £r^ r^^jjA-^c^ ^ .^L^«igw--^t^.■v.>>^^^^^^^^■ >XXu-^^^^ ji^t^iJclAj fst\,a.^y^. Sa*->^AA^ ""^ Sien.niire „1 AiiflKani tJ-^r^M^LS. =>^__ FORM 7. Elden Manufacturing Company — Application No. 2 EXPORT SALES FORCE 387 have applied for the position but already two have been rejected as undesirable. From the five remaining appli- cants two men are to be selected for final interview by the export manager. Problem 98 Giles Paper Company— Should Native Salesmen be Employed IN Preference to Americans? The Giles Paper Company is contemplating the prac- ticability of selling its merchandise in the Latin Ameri- Name in full QxM\t^ K, UixaA^^^ Bom at (hLio. \/MA^AjA,JL.y^-X- your ^l^ftKj^ jio.T -..« ...t, ... nr Employee nfihit Co '-6u If so. lo «honi>(8j^(J/t»*^ a.oe«.«''ship ^l^^j./U^^ ^ \(if^\m fi>^>Ji^'^iMt^ l^ ^» 4..;!.;A>^ ■»- (W ^*tI»^A_ uf.iU><*«^ O ^oMa/^uji^ (Ju»*»«' Y^ "tf ' n fvut^ yrjuc^ ^Quj^ Are you a grifluate rrf any Hinh Schnol or Coll-'pe ? lA le and location of Instit ? -^W-. ' lr-.«l.e,e' %-itL.^uAr'^xjUA.t^ I? Father (XivjAct^OA-^ Motner Cc«««aa. !d to resign from any Rituation ' v^iAy Bond ' r ' Are you a regular Church A Of what Nationality are your Parenti What languages do you •peak ? WhatlanguBgcpdoyou fcrite? Qi JUixU ^Aj^^^tk^ a>^ >4**a. ^^ Hive yoo ever been dismissed or requested to resign (rom any Rituation' ' 'ufMy If ao, where, when and cause of dismissal Are yoo able to give pergonal Guarantee Bond Have you previously been bonded ? ^Y[% Personal or Guarantee Co ' Are you at present in good health ? '^■'T-^x*-' Have you during recent years had any pmtracted illness' V[o 1' »■ fP^« nature Sate any special qualifications ynu may possess which you think will enable us to form an opi » as n- ,yui ..u.«j, .y. .^..^ ^^^^,. ^kk-— — r fitness (or the position applied for t T-\>C'iA^«- -i-**-- Ctv^w** AyCO'-yr.a^ t-AA-ifOX* jaf /r*vv-M.a Ijjl'ia^ .-(y/aZ*- 7r>virv-&<^«^^ (UiJ,^^ tl fJt y.U.:t '^^A.^^v^6H, -^,%..-oui innt'ss for ih; pofcition appli'_'d for j^ Ll. ^ C '^cJ^A^ ^9Z MU6^:tu^ ^^ /i-,^^ /^/l- '* Present I ^^-jj Address 1 '.neO Ase a I Stafe>vho they irtTi^/l^^^ -^.^.^JiJ^Ju ,^.^tL /. 'AzL -f mJ/ ^V tU^iu' 5w> (Pa vL^ nal Guaianiee Bond ? «(^t*.*^^ ^ h-i/L.^~uJ' Have you previously been bonded? r\^ Personal or Guarantee Co. Are you at present in good health ? ^iJjS^ f pr«racted illness? /"^jj^ttf- " »■ g'^'e nai Have you during recent yea State any special qualificatto d may possess which you thnik will enable us to lorm an opinion a I your fitness for the position applied for -^U-«»-tt-l-' ^^f.A'l.^ OLA. -f^Cl, %*^9 /^-A/^^ , .//. /f . .y/7,7WT^^:,.7 1.'^ y^^tCoL '//. »r C ,%^^^M-( Xi^t\/. C< ^ ./^^-i^tjyj^'^-:. W hik.L.,.^ ■t<', z^i- O'a dS^ ■^^U >/r' ( "k^^jJ^^ '-StU^AMyU- --vv./^ JCi,//.^'/ rs,„, 'J- G^ >{.CL FORM 10. Elden Manufacturing Company — Application No. 5 390 PROBLEMS IN EXPORT SALES MANAGEMENT Rio dc Janeiro, Buenos Air^s, and Santiago. Each branch employs from three to seven salesmen who call on book binders, printers, publishers, newspapers, sta- tioners, and other large consumers of paper in their ter- ritory. These men are all native Americans or British who represent the type of salesman the company has found to be the most successful in this field. They speak Spanish like natives, understand the methods and poli- cies of the Giles Paper Company in carrying on its busi- ness in Latin America, and are acquainted with the buy- ing habits and customs of South American customers. These salesmen are efficient, capable men, whose salaries run from $3000 to $5000 a year. In times of prosperity it has been possible for them to sell enough paper to keep the percentage of selling expense fairly low, but, in times of depression, the situation is radically different. Native Latin Americans, even of the educated class, are able to live more cheaply than Americans or Eng- lishmen because they know the country better and under- stand how to take advantage of its opportunities. They do not, as a rule, live in the expensive sections of the city frequently occupied by an American or English col- ony. Having been born and brought up in South Amer- ica their tastes and habits are those of the country in which they reside and they are content to eat native food instead of expensive imported products from the United States. A good native salesman can usually be secured at about one-half or two-thirds the salary of an American or English salesman but he is apt to be less efficient. During a dull season he may be paid a nominal sjjlary, but as prosperity returns and he has an opportu- nity to make more money by increasing his sales he is fre- quently inclined to be content with his old salary and be rather lax in his work, with the result that a larger num- ber of salesmen are needed to cover this territory. Should the Giles Paijer Company adopt the policy of employing native J^iatin American salesmen? EXPORT SALES FORCE 391 Problem 99 VoLK Paint Company — Training of Salesmen* The experiments of the Volk Paint Company in send- ing domestic salesmen into tlie foreign field have not been successful. This firm is one of the best-known paint and vanfish manufacturers in America, advertising ex- tensively throughout the United States and Canada, both in billboards and magazines. In addition to making paints and varnishes this company produces shingle stains, paint brushes, painters' supplies, and artists' ma- terials, such as water colors, oil paints, easels, palettes, and numerous styles of brushes. Its main factory is lo- cated near Chicago, but it maintains sales branches in all but two of the Federal Reserve districts, and operates retail stores in New York, Chicago, and San Francisco, Much of the company's success in the United States has been due to its energetic and well-managed sales force, which sells direct to the retail trade. It w^as this fact more than any other which led the firm to send American salesmen to the South American market. Originally like many other American manufacturers, the company relied almost entirely upon commission houses for foreign orders, but finally decided to send one *Tlie following references deal with education and training for foreign representatives : Training for Foreign Trade, Bureau of Foreign and Domestic Commerce, Washington, 1919, by R. S. MacElwee and F. G. Nichols. Printers' Ink. May 1, 1919, p. 141— "The Day's Work in an Exporting House." Sept. 2, 1920, p. 125— " First-Hand Ad\dce to Salesmen in Latin America. ' ' July 14, 1921, p. 25— " Preparing the Export Salesman for tJie Field. ' ' The World's Markets. Mar. 1919, p. 27— "The Study of Commercial Geography." May 1919, p. 22— "Commercial Education for Foreign Trade." June 1920, p. 50— "Education for Foreign Trade." Jan. 1921, p. 25— "Training the Export Salesman." Mar. 1921, p. 25— "Foreign Trade Education." Apr. 1921, p. 30— "Education for Foreign Trade." June 1921, p. 24— "Foreign Trade Education." June 1921, p. 24— "Mexican-American Scholarships." 392 PROBLEMS IN EXPORT SALES MANAGEMENT or two salesmen to South America to try out the field in Argentina and Brazil. In its first experiment the com- pany advertised for export salesmen and selected from the applications received two men, who had lived in these countries and could speak Portuguese and Span- ish. They were given a hasty course of instruction in the kinds and uses of Volk Paint Company's products before being sent to Rio de Janeiro and Buenos Aires. Although these men knew the language, they knew lit- tle about the technique of export work ; neither did they have a thorough grounding in the practical use of paints and varnishes. The orders which they sent to the New York office did not give sufficient information as to the methods of shipping that should be employed, neither New York Evening Post. June 25, 1921— "Adequate Training- Is Being Urged as a Means of Meeting Foreign Competition. ' ' Business Training Corporation, 1917--" The New Foreign Trade"; 1018 — "A New Factor in Executive Success." Cooper, Foreign Trade Marlets and Methods, Chap. V. Journal of Political Eronomy, June 1922, by James E. Moffat — "Courses in Foreign Trade. ' ' Proceedings of annual conventions of National Foreign Trade Council. 1915, p. 173, Dr. Edwin F. Gay —"Commercial Education for Foreign Trade. ' ' 1915, p. 229, group session — "Commercial Education for Foreign Trade. ' ' 1916, p. 144, Wallace D. Simmons — "Keport of the Committee on Commercial Education for Foreign Trade of the Natioiuil Foreign Trade Council." 1916, p. 159, Dr. E. E. Pratt— " Education of Men for Foreign Trade." 1917, p. 391, group session — "Commerci.d Education for Foreign Trade." 1918, p. 222, G. L. Swiggett — "Educational Preparation for Foreign Service. ' ' 1918, p. 245, Selden O. Martin — "Practical Commercial Education." 1918, p. 262, George II. Kichards — "Commercial Education for Foreign Trade — Fundamental — Special and Post-Graduate. ' ' 1918, p. 269, Howard E. Cole— " Standard Oil Company of New York Foreign Service Class. ' ' 1919, p. 108, K. S. MacElwee — "Vocational Education for the Busi- ness of Exporting. ' ' 1921, p. 47, Dr. J. A. de Haas — "Fundamentals in Foreign Trade Education. ' ' 1921, p. 57, W. S. Tower — "Means of Getting an International Viewpoint in Foreign Trade Education. ' ' EXPORT SALES FORCE 393 (lid they iudicat.' for what purpose the paLiits were to be used, nor what difficulties with foreign customs laws might be avoided with proper care. After several months, when it had become apparent that nothing at all startling had happened to the com- pany's sales volume in this field, it was decided to, send George Applegate, the company's third best salesman in the domestic market, to Buenos Aires in an attempt to liven up the trade f I'om that territory. Applegate sailed for South America in high spirits, but after several months had passed orders failed to be forthcoming. In the first place, he was seriously handicapped by his in- ability to speak a word of Spanish and his failure to un- derstand the business conditions and buying habits of his customers. This difficulty might have been overcome by a little apphcation, but Applegate found congenial friends in the American colony in Buenos Aires and did not attempt to become thoroughly acquainted with the Argentineans themselves. To all intents and purposes he might almost as well have been in New York as far as his understanding of Argentinean methods was con- cerned, and he was finally recalled to the United States where he was given his old territory, much to the rehef of both himself and the company. The Volk Paint (Jompany next made another attemjit to send a domestic salesman to Latin America, but this time it made sure that its representative could at least speak the language of the country to which he was sent. Harold Beyers, the man chosen for this second experi- ment, was about 32 or 33 years of age and had previously handled part of the company's territory in New York City. Beyers was sent to Rio de Janeiro and at once proceeded to cover his territory in his usual efficient man- ner. He called upon as many dealers as possible each day and adopted the tactics that had proved successful in New York ; but the orders failed to come in. Native Brazilians appeared more willing to buy inferior qual- ity paints from their friends than to purchase high- grade products from a stranger. About this time the 394 PROBLEMS IN EXPORT SALES MANAGEMENT firm wrote JMr. Beyers tellmg liini how expensive it was to keep a salesman in the foreign field and ended up by hoping that he would leave no stone unturned in order to get a large volume of business, so that his percentage of sales expense would not be too high. Knowing the small number of orders which was resulting from his efforts, he resolved to reduce expenses, at any rate, and began living at moderate-priced hotels and watching his expense accounts as closely as possible. Sales fell off even more, and Mr. Beyers was finally recalled to New York as had been his colleague, Mr. Applegate. At a recent conference the heads of the sales depart- ments of the Volk Paint Company all expressed their dis- appointment over the failure of the company to secure a firm hold on the Latin American market. They are sure that the men selected to represent the company abroad were capable, conscientious, and hard-working salesmen, but they are convinced that these men failed because they were not prepared to meet the conditions as they exist in South America. They therefore wish to have drawn up an outline of the qualifications and system of training necessary for their salesmen to operate successfully in Latin America. Problem 100 : The Atlantic Electric Company — Training of Salesmen The Atlantic Electric Company manufactures in its several plants an extensive line of motors, dpiamos, and electrical supplies for industrial and central plant equip- ment. It has branches or agents in all the principal cities of the world and has segregated its foreign busi- ness in a subsidiary corporation called the Atlantic In- ternational Electric Company. One of its very great difiSculties in the conduct of its business in foreign fields lies in the difficulty of securing salesmen and representa- tives who will properly represent the company. The of- EXPORT SALES FORCE 395 ficials feel that they must have men with some degree of training and have finally come to the conclusion that it is much better to secure men with fundamental cultural or technical training and to attempt training in the de- tails of their foreign business rather than to choose men purely on the basis of their foreign experience. The com- pany is a member of the National Association of Cor- poration Training, A committee of this association in 1921 made a report of training in which the practices of a number of prominent companies were summarized. Ex- tracts from this report, which seemed to have some ap- pUcation to the problems of the company, follow:* "The Standard Oil Company, New York City. ' ' Our policy is to con&ie our training to men especially quali- fied to take up this particular work. We, therefore, eliminate poor material before the class starts and are thus able to concentrate the training*- on a few speciality qualified men. These men in the past have been selected from the various universities and from our own organization. We are striving more and more to find among our own employees any who are particularly suited to take up this training. "Our classes are composed of about twelve men, six or eight of whom are given the foreign service training. In the past these classes have been started every ten weeks, covering a period of tAventy-six weeks. We aim chiefly to teach the men the details of our business, the manufacture of our products and the organization and function of the different depart- ments in our company, in particular the foreign departments operating in the locality to which each man will be sent. ''The course consists of ten weeks of practical experience in our refineries, where, under the supervision of an instructor, the men learn the manufacture of our products. They are then transferred to one of our marketing fields for ten weeks, where, also under an instructor, they learn how we market our product and how our substations and general offices are managed. On the completion of this work they are trans- ferred to tlie New York offices for six weeks, where in the various foreign departments they finish the training. During these twenty-six weeks they are trained by actual experience rather than by observation of the work. *The National Association of Corporation Training, 9th annual pro- ceedings, 1921, pages 257 et seq. 396 PROBLEMS IN EXPORT SALES MANAGEMENT "Tn addition to this the men are given a course in the hm- g'uage nsed in the country to which they will be sent. Each week an officer of the company or a department head gives a lecture on some phase of the company's business so that they will get a broader experience of the work they will undertake. "A library of technical books is furnished to assist them in their refinery work. Also from time to time, depending on the particular work to which a man is assigned, other books are recommended. "During the period of training the men are paid twenty-three dollars a week, in addition to any expenses incurred in the })erformance of work a.ssigned. "We do not restrict our work to college graduates, as we be- lieve this is unnecessary, but we do stipulate that a man shall have had the equivalent in business experience. As a matter of fact we seiid a great many college men who apply to us for work out to one of our ])laiits to get that practical experi- ence which we deem to be of vital imi)ortance, not only because of what he may learn but also as a further test in judging a man." W. R. Grace & Co., New York City. "A matter of vital importance to such oi'ganizations as the Grace Company consists in the conduct of educational classes, intended both to bring students together in close personal contact and work to a common end and to fit them for par- ticular fields of activity. In the home office of W. R. Grace & Co. these classes meet on Tuesdays and Thursdays from five to six forty-five on the following subjects : Elementary Span- ish, Intermediate Spanish, Advanced Spanish, Commercial Geography, Talks on Accounts, Typewriting Course (given in small groups of three, four and five persons). "In addition to these regular courses, special training is given for particular students and a series of lectures running through the year, upon subjects of most vital moment in the. activities of the firm. Some of these lectures ai'e given by heads of departments or si)ecialists in the organization itself, while occasionally outside lecturers are secured. "A further assistance to the mental training of individuals is afforded by a carefully chosen library, a ]K)rtion of which is filled Avith books for ciicnlation and the other portion with reference books. Hundreds of iiiend)ers of the firm, at the home office, borrow these hooks evei'y month for two weeks' reading, Avhile the P]tlitorial Department is constantly in de- EXPORT SALES FORCE 397 mand by \arious members of the house who wish to consult maps, dictionaries, trade encyclopedias and various works in different langniaoes, as these relate to their several de- partments. ' ' "American Locomotive Company, Schenectady, New York. "The men selected for work in our Foreign Department are usually given a two-year course of training in the engineering and maiiufacturing departments, as well as some experience in the foreign office of the company in New York City. The shop training is intended to familiarize the men with the com- pany's manufacturing methods and standards of workman- ship, while the engineering experience covers the impoi'tant elements in locomotive design and general calculation pertain- ing to tlie proportioning of locomotive parts. Literature is supplied dealing with the locomotive and the company 's prac- tice, and in most cases the men have taken special' evening classes relating to locomotive work. "After the preliminary training and service in the home office of the foreign department, these men are placed as assistants in the sales offices in foreign countries and are advanced according to the ability shown. "Such outside study as is required to prepare men for work in the foreign department is usually borne by the individual, but not infrequently the expense has been partly carried by the company. "Recruits are preferred from among college graduates, par- ticularly those who have taken mechanical engineering courses. It has been the experience of ouj company that college train- ing has a decided advantage in developing a man's initiative and enabling him to analyze conditions relating to his work and find solutions for the problems presented, to an extent not found in most men who have not had college training. "We believe the important elements in the training for foreign service are : (a) A thorough knowledge of tlie company's mechanical practice. (b) A knowledge of the essentials of its engineering practice. (c) The handling of responsible work in the home office, which w^ould give an appreciation of the relation of work in the foreign field to that of the industry. (d) The development of sound judgment in business re- lations. 398 PROBLEMS IN EXPORT SALES MANAGEMENT (e) A knowledge of modern salesmanship. (f) A clear understanding- of the characteristies of people to be met with in the foreign field." American Trading Company', New York City. '^(1) Qnestion. — ^What institutions do you eonsider to be doing effeetive work in training students for our foreign trade ? Answer. — -W. 11. Grace & Co., National City Bank, American Trading Co., Arkell & Douglass, Guaranty Trust Co. ; Harvard and New York University and other colleges that give a certain amount of theoretical training. " (2) Question. — What books have you found most useful to suggest to schools or business corporations for use in such training? Answer. — ' Practical Exporting, ' by Hough ; ' Foreign Exchange Explained, ' by Escher, and certain bank publications. *'(3) Question, — Could you suggest certain places where schools or colleges are cooperating with business houses in training men for overseas trade? Answer. — New York University, Columbia University and Harvard University. "(4) Question. — What do you consider to be the most vital subjects to be taken up in a course of study intended to fit men for foreign trade careers? Answer. — Routine necessary to exporting and importing — a certain amount of export finance — concentration and common sense — general executive ability and the power to handle adequately much detail work and to assume responsibility. ' ' General Motors Export Company, New York City, "Unfortunately, on account of the recent and rapid growth of our export trade, very few Americans, trained and ex- perienced in the export field, are available for foreign service; therefore, the American manufacturer who wishes to expand his overseas forces and to develop his organization is obliged either to take men ti'ained in the domestic field and transplant them into unfamiliar surroundings and conditions abroad, or 1o give young men of the desired mental, moral and physical calibre a course of intensive training for overseas service. "The General Motors Export Company has selected the latter alternative as the one most likely to ])i-ovide men qualified to successfully uphold the best traditions of American business here and abroad. It has established and is now conducting the EXPORT SALES FORCE 399 General Motors Export Company's Training School, which is designed to equip men to represent it in the various branches ot Its foreign activities after a thorough training in its class- rooms, shops and offices. "Due to the fact that a year is the minimum time required to teach even men of exceptional ability the rudiments of the export business and the merchandising in overseas territory ot the numerous products (including motor cars, trucks tract- ors, and lighting outfits) which this company, as the export division of the General Motors Corporation, markets it is necessary that the men accepted for training possess most of the known essentials for success in the overseas business fields before entering the training school. "Our company maintains a library to which are constantly being added such books on business, commercial geographv and foreign trade in general as recommend themselves to our lavorable consideration. "A daily News Annalist published within our office, and con- taining extracts on commerce in general taken from various newspapers and publications, domestic and foreign, is also used m giving our men general and specific knowledge concerning our trade abroad. ^ "Since this company offers to certain selected employees full enrollment m the school, and to any employee the privileo-e of enrolling for such of the courses as will make him more valu- able. It has not been felt necessary to recommend outside study "Although it might be safe to say that the best men usuallv come from the college of commerce, and graduate school of business administration, this company has found good ma- terial withm Its own ranks as well as elsewhere. Since the course has only been established since April, 1920 sufficient time has not elapsed to make a definite statement which would serve as a guiding principle. "It is felt that other things being equal, a college graduate will forge ahead faster after he has assimilated the technical knowledge necessary to the understanding of the business "Naturally it is thought that the ideal means for fitting men to take responsible positions abroad is through the establish- ment of a training school operated by a company; but since many firms would not find so expensive an operation profit able. It IS believed that sufficiently specialized courses can be bad in some of the larger universities. "This of course does not help firms which may be situated at a distance from these seats of learning. In such cases we believe that enrollment m recognized correspondence schools 400 PROBLEMS IN EXPORT SALES MANAGEMENT is helpful, but that it should be supplemented with weekly- discussion periods, attended by executives of the company and backed up with the employees' practical application to their own business." E. I. DuPoNT DE Nemours Export Company, New York City. "We have no particular school for training our foreign repre- sentatives, but the Domestic Company maintains at Wilming- ton a school for the education of salesmen. This course takes from three to four months and educates the employees as re- gards the manufacture and use of the various products of the company, "After this course has been completed, a representative, if he is to be connected with the Export Company, is brought to our main office in New York and kept there from one to two months and is given an education in our methods of doing business through our various departments, such as the order department, advertising division, filing department, etc., de- pending upon whether he is to be a salesman, a sales repre- sentative, or an office man in one of our foreign offices. "Before entering the service of our company it is necessary for an applicant to interview at least three of our representa- tives and also to pass a physical examination. If the inter- views and physical examination are satisfactory the applicant is then placed on the regular payroll and sent to the school for training, we continuing to pay his salary while he is in the period of preparation. Of course if he fails to pass the educational course his services are discontinued. "So far as the value of a college training is concerned, I am not prepared to make any definite statement, as very few of our representatives are college men, and the few that are do not enjoy any better positions than those who have not had such advantages. "Practically all of the employees of the Export Company in executive positions are old employees of the Domestic Com- pany, having grown up with the company and been with it from ten to twenty years. ".Any new men that we have taken on have been chosen for positions more because of their particular knowledge of the positions in which we wished to place them than from any thought as to whether they had or had not a college educa- tion." United States Steel Corporation, New York City. "Our United States Steel Products Company have had in force for a year or more a foreign service class for training am- EXPORT SALES FORCE 401 bitious and promising young men who are in the employ of the company, for foreign offices. There are always a number of men undertaking this course for various lengths of time as circumstances or immediate necessity permit, by which they progress through the various sales, shipping and financial divisions of the New York office. "This training, in many instances, is supplemented by an especially routed trip through some of our mills where goods are manufactured. "In this course, they have included men whom they have employed because of their special qualifications in knowledge of foreign languages, or in technical or engineering training — for posts where this was imperative, and among them have been numerous college graduates; but such college training is not necessary and they have always given preference to their own men of good education, appearance and address, who have shown proper application and promise as well as to those men already employed in our subsidiary companies who have had mill training or experience in selling mill products. ' ' In pursuance of its plan to start on its own account the training of men for foreign work, the company has pro- posed starting a class-room course consisting of ap- proximately 40 lectures with correlated reading covering the organization and general methods of the company, an outline of the theory of business, banking, credit, in- struments of credit and collection, foreign exchange, for- eign customs duties and tariffs, an outline of the theory of accounting, government regulations, and commercial law in foreign countries. Practically all the men who be- come candidates for this course are graduates of techni- cal schools and have had experience in the testing depart- ment of the concern. Some of the men have taken courses in advanced engineering and have had some business training in which the company has borne about half the necessary fees for the courses. It is proposed to start also courses in Spanish and French. Should the plan be adopted! What modifications should be suggested? 402 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 101 Thompson Paint Company — Methods of Paying Foreign Salesmen In order to reduce oi)eratiiig' expenses and secure more efficient results, the Thompson Paint Company is con- sidering changing the present method of paying its for- eign salesmen. The working out of a satisfactory method for compensating foreign representatives has been found to be rather difficult ; the work of a foreign salesman can- not be closely supervised, he must be left to operate on his own initiative to a large extent, and he must perform several different functions. In addition to making sales the foreign representative of the Thompson Paint Com- pany is not infrequently called upon to demonstrate the uses of his product, perform missionary work in introduc- ing his line to new dealers, and make adjustments on damaged shipments. At present this firm is paying its foreign salesmen all expenses and a salary averaging about $4,500 a year. If a representative is single he may receive as low as $3,600, but a married man often receives from $5,000 to $7,000 a year. Since a salesman's usefulness does not reach its highest point until he has been in his territory for a year or a year and a half, the company sends a man abroad under a contract for a period of never less than two nor more than three years, at the end of which time he comes back for a six months' vacation. If a man has been assigned to a tropical country, the firm arranges to have his vacation in the United States occur during the winter months in order to give him a change of climate. At this time salary adjustments are made and a new contract signed for another period. A possible solution is to pay salesmen solely on a com- mission basis. Since expenses are paid by the company, all commissions earned are practically clear. By compen- sating foreign salesmen with a commission based upon a percentage of n^et sales, the company assures itself of pay- EXPORT SALES FORCE 403 ing only for actual results. It is not probable, however, that a man can be induced to take up the sale of Thomp- son paints on a commission basis in a foreign countrj^ when he knows that he cannot expect to reach his maxi- mum stride until he has been in that country for at least a year. Even from the standpoint of the company, com- pensating salesmen solely on a commission basis is not wholly advantageous, for emphasis is put entirely on sales and little attention is given to the need for dem- onstrations, missionary work, and calls upon dealers from whom no immediate orders can be expected but who may be induced to give information concerning the policies of competitors. Another method intended to offset the evils of paying foreign salesmen on a straight salary or a straight com- mission basis is a compromise between the two. The salesman is paid a commission on all sales which he makes, and in addition a small salary to cover his per- formance of functions which may not result in immediate sales but which are nevertheless building up good-will for the firm. The Thompson Paint Company regards this plan more favorably than paying a salesman on a straight commission basis; but this method also, has its disad- vantages, since increased earnings depend entirely upon increased sales, and the company's representative is still liable to give undue emphasis to immediate results. The last method under contemplation is a modified task and bonus system. The expenses of the foreign salesman are paid by the company as before, but his compensation depends not only upon a commission on all sales but also upon the payment of a small fee for each duty which he performs. The exact rates of pay- ment have not as yet been determined, but for the pur- pose of analyzing the plan, the company is considering paying its foreign representatives on this basis : Each call $ .25 Each demonstration .50 Each adjustment at the rate of an hour for time consumed 1.00 Each sale 5% commission 404 PROBLEMS IN EXPORT SALES MANAGEMENT Thus in a new territory where sales are small a sales- man will be able to earn a living, yet the company will be paying only for the work actually done in its behalf. Although this plan might work admirably in large cen- ters Hke Mexico City, Buenos Aires, or Rio de Janeiro, in smaller towns a salesman would be able to make but few calls per day. There is also the temptation for the dishonest or weak salesman to report calls as demon- strations or to report calls which he did not make. Problem 102 Sandock Company— Pay of Salesmen The cost of living varies considerably in the cities in which the Sandock Company maintains foreign sales branches, including Buenos Aires, Rio de Janeiro, Mex- ico City, Havana, Shanghai, Tokio, Lyons, Milan, Copen- hagen, and London. In most foreign countries social standing is of great importance and it is necessary that the company's salesmen "live as white men" and attend the same social functions as their customers. The sal- ary of each of the company's foreign salesmen is there- fore set at a figure sufficient to enable him to live as a gentleman in the cit}'' in which he is located. Recently the salesman in Argentina asked to be trans- ferred to Mexico City, where a number of his friends had secured assignments with other companies. Mexico had been his first foreign territory and this salesman, conse- quently, had. a large acquaintanceship among the com- pany's old customers. The salesman in Mexico had the wanderlust and was equally anxious to make the change. Since both these men were experienced foreign travelers who had been in the employ of the company for a number of years, the request was granted. Because the cost of living was greater in Buenos Aires than in Mexico City, however, it was necessary to raise the salary of the man who was transferred to the former EXPORT SALES FORCE 405 city. On the other hand, the Buenos Aires salesman had been receiving a high salary for a considerable length of time and it did not appear ad\dsable to reduce his salary when he was sent to Mexico City, where the cost of living was less. By paying the same salary in Mexico that was paid in Argentina, the company was establishing a dan- gerous precedent which might cause difficulty when sales- men were sent there in the future. Similar instances have occurred in the past in other countries. It is proposed therefore that the company base the salary of its foreign salesman on his worth and length of service, the difference in the cost of living in the various countries to be taken care of by a "living and expense allowance. " Under these conditions a sales- man could be transferred from Buenos Aires to Mexico City or from Lyons to Milan without changing his sal- ary, his living and expense allowance only being changed to meet the new conditions. A number of objections have been raised to this plan. The salesmen of the Sandock Company are all experi- enced men, who would undoubtedly object to reductions in salary for adjustment where establishing allow- ances. If the salaries are maintained at their present level it would be expensive for the company to make an additional allowance to cover the cost of living in the different countries. Furthermore, since salesmen fre- quently like to tell their friends that they are receiving large salaries, it is quite possible that even new sales- men would not look with favor upon such an arrangement. Should the Sandock Company adopt the proposed pol- icy of paying its foreign salesmen? 406 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 103 Morse Paper Co. — Export Salesmen — Advance Territory Work* In introducing its line of paper novelties into Argen- tina the Morse Paper Company had followed the prac- tice of sending a salesman on a preliminary trip for the purpose of getting acquainted. On this first trip the salesman was not expected to do much business but rather to lay the foundation for future trade. He was in- structed to look over the field, meet prospects, and ex- plain his line of goods consisting of paper tags and crepe paper used for decorative purposes. In 1921 the traveling expenses of export salesmen in- creased, averaging between $18 to $20 daily. This did not include entertainment, commercial travelers' license fees, excess baggage, and duties on samples. It was not uncommon for a salesman to average $25 a day, not in- cluding any emergencies such as long motor trips be- cause of disabled rail or water transportation. Based on the $25 average the export salesman represented, apart from salary, an expenditure of $7500 on a three hundred days' trip each year. In 1921 the company was contemplating a sales cam- paign in the countries on the west coast of South Amer- ica. The distribution manager, in order to curtail ex- penses, suggested an entirely new method of entering the field which would postpone the preliminary trip of the salesman for one year until the field had been prop- erly prepared. His suggestions were outlined in the fol- lowing plans : ''First of all, the general territory to which the sales- man is to be sent should be carefully studied. The ser- vice of export institutions and journals should be enlisted in preparing the salesman's itinerary and in determining the time which should be spent in each city. By this care- ful examination of the territory it might be found ad- visable to lay out side trips from the leading cities and *See Wyman, Export Merchandising; also The World's Markets for May 1919, p. 14; and Export Trade for Oct. 1, 1921, p. 21. EXPORT SALES FORCE 407 to have the salesman make trips into the interior towns that are seldom visited. These alone, in many cases mth which I am familiar, have yielded sales at profits which more than cover the cost of preparing the entire field for the salesman. "When the cities and towns have been decided upon w^e should compile two mailing lists. The first would include the names of all dealers who are in lines that indicate a strong probability that they might be engaged in the re- sale of products of the same general nature as those of our company. The second list would contain only the names of the biggest and best firms in the territory. In order to be in the right position for effective correspond- ence, we would buy credit reports on all names on this second list. *'A year before the salesman's visit we would start our 'field preparation campaign' with a series of mailing cards. These cards would be handsomely printed, show- ing our leading products in their natural colors. These, on their face, would be an indication of size and expe- rience, since in language, text and layout it would be clear that they were the work of experts. The series would consist of twelve bulletins, mailed at two-week intervals. One of these bulletins would feature our several fac- tories, showing in a striking way the immense number of employees. Other cards would show window displays of our products in out-of-the-way cities of the world, as well as on the broadest avenues of the largest cities of the world. "Six months before the salesman's trip we would mail very carefully worded letters in two series. The first of the series would be a general letter going to the large list, from which, of course, the names of the elect had been removed. The second of the series would consist of in- dividual letters based on information contained in the credit reports previously mentioned. While these letters would make it possible for the recipients to make pur- chases and a strong eft'ort would be made to secure at least one customer in each city, the main object of the 408 PROBLEMS IN EXPORT SALES MANAGEMENT series would be to make our representative a welcome visitor later on. '' During the six months' period advertising for tlie ex- port business would be carried on in two ways. In export journals the salesman's trip would be advertised, showing by means of outline maps the salesman's routes and the approximate dates that he would be in each city. Re- prints of these advertisements would be used for en- closures in the letter series. The second use of export advertising would be in the local newspapers in the cities which the traveler was to visit. These advertisements would feature the goods and the company rather than the salesman, but would include a few well worded lines and a head-and-shoulders cut of the salesman. ''The final letter in each series would bespeak a wel- come for the salesman. It would be timed to arrive on the same mail as the salesman's advance card, which would be dignified but not cold and which would show a naturally posed photographre likeness of the saleman. This final letter and the salesman's advance card would be timed to reach the dealer not more than two weeks before the salesman. "While it would be impossible to figure the actual cost of this preparation for any given market for the purpose of illustration here, it mil be found that this method of preparing the field will probably cost OTie-fifth to one- quarter as much as a salesman's trip. It will be found that the salesman will be greeted on his first trip with all the cordiality that the average foreign traveler receives on his second trip. "The order will prove the value of the field prepara- tion." Should the Morse Paper Company have sent salesmen to the west coast of South America immediately or should it have prepared the field for one year in advance? EXPORT SALES FORCE 409 Problem 104 Wadsworth Company — Equipment of Foreign Salesmen* The Wadsworth Company, a cotton textile selling house, has never given much attention to the standardi- zation of instructions, equipment and supphes for its foreign salesmen. Most of its representatives are ex- perienced men who have already traveled in the countries to which they are being sent ; the younger men on their initial trips are usually advised by the older salesmen as to what they should take with them and are given a course of instruction before they are sent out. The com- pany usually furnishes each representative Avith price lists, catalogs, order blanks, samples, the names of pre- vious customers, and a letter of credit to the foreign bank through which the salesman is to receive his funds. The export manager, of course, keeps in touch with his men by mail and by cable. Little attention has been given toward standardizing the equipment that each salesman should have. Instances have occurred in which salesmen of the Wadsworth Company sent to the Far East were put to considerable inconvenience because they were unable to show customers credentials as to their authority to rep- resent their firm. At other times the company's repre- sentatives have offended wealthy American customers by being forced to decline invitations to social activities because they did not carry the proper formal dress. Other instances of a similar nature have occurred at in- tervals and the export manager has decided to eliminate this difficulty by establishing a standard equipment for all foreign salesmen. After consulting a number of for- eign trade handbooks and talking the matter over with some of his salesmen, the following list of suggestions for equipment has been made : For furtlier information upon tlie equipment of salesmen, cf. Filsinger, Commercial Traveler's Handboolc for Latin A7nerica; Hough, Practical Exporting, pages 182-186; The World's Markets, July 1921, p. 17— "Ex- porting Salesmen"; and Export Trade & Exporters' Review, July 10, 1920, p. 10— "First Aid for Colombian Travelers." 410 PROBLEMS IN EXPORT SALES MANAGEMENT Passport: Although not needed in all countries, passports provide an easy and sure means of identification and often assist the salesman in escaping Government red tape. Wardrobe : Salesmen should receive instructions as to weight of clothing and type best suited to the country to which he is being sent. Particular attention should be given to dinner and evening clothe^s for salesmen covering Latin- American and other countries where social intercourse is an important factor. Instructions on Health : A sick salesman is a very expensive representative of the company. All foreign representatives should, therefore, have instructions as to the kinds of fruit to be avoided in the tropics, the dangers of contracting malaria and other diseases usually transmitted through the sting of a mos- quito or other insect, the effects of high elevations, and the dangers from Avater supply. Red Cross First-aid Outfit: Salesmen should carry simple remedies for illness and minor injuries. Inoculation and Vaccination: Because of the dangers from traveling and poor living conditions, all salesmen should be inoculated against typhoid and vaccinated against smallpox. Letters of Author it ij: All salesmen should carry letters stat- ing their exact power and showing whether or not they have the power to appoint agents, etc. Letters of Liynited Authority : To aid them when dealing with foreign customers, who may demand varying credit terms or special concessions, letters showing their limited authority should be carried by the salesmen. Power of Attorney : It is frequently of great help to an ex- perienced salesman to be given the power of attorney to enable him to make adjustments in the name of the company and to act with authority in case of dispute. This authority, however, should not be given a young salesman or a man who has not proved himself thoroughly capable and reliable. Copies of Confidential Correspondence : Copies of important correspondence assist the salesman in adjusting disputes or in pacifying irate customers and at the same time avoid involving the company in complications. Mailing Schedule: Mailing schedules should be cjgreed upon in order to keep salesmen in close touch with the comi)any and make it possible for them to receive letters and instructions with the least possible delay. The company should be advised by the salesmen by cable of any changes in these mailing schedules, since the delay of important letters might mean that the value of the trip was practically wasted. Ample Money to Coiner all Expenses : Sufficient money should be available at all times to every salesman. There is nothing EXPORT SALES FORCE 411 which injures the reputation of the company and embarrasses a salesman so much as to be compelled to turn to friends or customers for finaucial aid.* Copies of Important Documents: Salesmen should be sup- plied with copies of all important documents such as contracts for the appointment of agents, sales policies, and terms. Letters of Introduction : Special letters of introduction to rating agencies and banks should be given the salesmen to help them secure special credit information of value to the company in passing on the orders of customers. Credit Blanks : Standard forms should be drawn up by the company for recording special confidential credit information on a customer secured by the salesman from other merchants in his town. Instruction Book : An instruction book, both in English and in the language of the country in which the salesmen are travel- ing, should be prepared in order to make sure that there is no mistake in regard to such technical details as insurance on mer- chandise sold, the terms which must be agreed upon, and the other obligations which the company or customer assumes. Catalog of Product : Salesmen should be provided with cata- logs describing their company- 's product both in English and in the language of the country visited ; measurements and other specifications in this catalog should be listed both in English and in the metric system in order to assist in figuring customs duties and other items. Private Code : All salesmen should have a copy of the com- pany's private code to enable them to report confidential infor- mation without danger of revealing the facts to competitors or others. Collect Card : Every salesman should be given a collect card by means of which he can have cablegrams sent collect, thus making it unnecessary for him to carrj^ additional amounts of money for this expense. This also enables the company to check up on the payments for cablegrams and secure any reductions that may be allowed. Samples : Salesmen 's samples should be carried in several lots, so that if necessary they can leave one lot with the customer for a few days while they call on other customers. *If export salesmen intend to spend a number of months in a particular locality, it is customary to open up a special credit in some of the banks under arrangements whereby the salesman can draw a certain amount each month. If salesmen are spending comparatively short periods at each point, they may be provided with a circular letter of credit the form of which is usually much as is shown in Forms 11 and 12 on pages 412 and 413. See page 414 for continuation^ of this footnote. 412 PROBLEMS IN EXPORT SALES MANAGEMENT The Export Bank CIRCULAR LETTER OF CREDIT No. $ livston. Muxs., U. S. A 19 To Our Conrspuudtiits: Dear Sirs: Wc bey to introduce to you and to commend to your courtesy M . in ivhose favor loe have opened a credit of . Dollars U. S. Currency and whose drafts to that extent, at sight, upon The Export Bank ive engage shall meet with due honor if negotiated not later than 19 Each draft viust be marked, "DRAW^ AGAINST THE EXPORT BANK LETTER OF CREDIT No. ''"'signed inyour presence andthe payment endorsed hereon. I'our negotiation of any draft will be considered a guarantee Uiat the foregoing has been done. This letter rnust be attached to the last draft drawn. Your charges, if any, are to be paid by the holder, whose signature appears in our Letter of Indication bearing the same date and number as this Credit. Wc are. Dear Sirs, Respectfully Yours, THE EXPORT BANK VlCEPRKSIDENt MANAGKH K)Ki;i(.N DKl'AltTMKNT A.SSIST.V.\T CASHIER FORM 11. Circular Letter of Credit, Front— See footnote on page 411 EXPORT SALES FORCE 413 Selection of Samples: Salesmen's samples should be carefully selected with special reference to colors and patterns most pleas- ing to the eye. Samples on which there is a large difference of opinion as to their salability should not be included ; they may, however, be described in the catalog. Brushes : Brushes should be included in the sample cases so that the contents can be kept free from lint and will appear fresh for the examination of each customer. Small Typewriter : Each salesman should carry a small type- writer for convenience in handling correspondence both with the company and with customers. Stationery : This should include: Personal stationery for acknowledgment of social obliga- tions and personal letters. Advertising matter — booklets of the mills with illustrations of the product. Preliminary copies of advertising. Business stationery. Personal cards. Business cards. Preliminary report blanks, which the salesman can use in making out the order in the customer's office. Regular report blanks giving full and complete details for the order. Address book. Expense book. Letters of Introduction: The salesman should carry general letters of introduction to consuls, commercial attaches, banks, PAYMENTS EACH DRAFT NEGOTIATED UNDER THIS CREDIT MUST BE ENDORSED BELOW DATE WHEN PAID PAID BY NAMEOF CITY AMOUNT IN WORDS AMOUNTIN FIGURES $ CUF US REr CY 1 — 1 FORM 12. Circular Letter of Credit, Reverse — See footnote on page 411 414 PROBLEMS IN EXPORT SALES MANAGEMENT credit houses, important customers, and export associations. Although these letters may not be used, frequently the conveni- ence and assistance rendered by one or two makes them valuable accessories to a salesman's equipment. Letters to ProsiJCcts : In order to shorten the time required to make a sale letters to prospects should be sent out ahead of the salesman explaining his visit. Salesmen should be provided with these letters to send out ahead of their visits. ^Continuation of footnote from page 411 : Accompanying the letter of credit is a letter of indication, which serves as an identification for the salesman when he attempts to draw funds upon the letter of credit: FORM 13. Letter of Indication EXPORT SALES FORCE 4,15 List of Customers : (a) Tried customers whose credit is 0. K. (b) Customers whose credit standing should be investigated by the salesman. (c) Prospective customers, with details as to size of busi- ness, etc. Customers' sheets should be given to the salesmen showing the amounts which each of their customers has purchased in the past, the promptness with which he has made payment, and the terms under which he can be sold. Which of these suggestions should the Wadsworth Company include in the equipment of its foreign sales- men? Should anv other items be added f Problem 105 The Volk Paint Company — Cooperation of the Export and Other Departments with Foreign Salesmen In the final analysis, it is the consensus of opinion of the heads of the sales department that one of the biggest reasons for the Volk Paint Company's failure to secure the greatest returns from the foreign field has been the lack of cooperation of the export department with its salesmen. The export manager had traveled but little in Latin America, yet he tried to advise salesmen on points on which he did not have first-hand information. Suggestions from his representatives in this field were ignored unless they happened to meet with his hobby or preconceived ideas. Under these conditions it is no won- der that the salesmen became discouraged and grew lax and indifferent toward their work. The former export manager has resigned and a new one has been secured whose knowledge of conditions in Latin America comes from personal contact as salesman in the field. This new man intimates that if he is to have his way the company must face squarely round and do 416 PROBLEMS IN EXPORT SALES MANAGEMENT everything in its power to help its foreign salesmen. Not only must the export department cooperate in every way, but all the other departments in the plan mnst do like- wise. If a salesman sends in an advertising suggestion as to the particular appeal that is securing results in his territory, his suggestion should be complied with, no matter what the officials of the company may think, for the salesman is on the ground and knows the true condi- tions, while the men at the home office are familiar with only the domestic market. Likewise, if a special order is sent in with unusual specifications, the production de- partment should comply with it no matter if the costs run so high that it fails to make a profit. It may hav*,' cost the company $75.00 in salesman's salary and expense to get this order and the production department should not throw away this money and the chance of some day building up a profitable business with this customer by refusing to sacrifice a dollar or two on the first order. Export orders should receive the right of way over do- mestic orders because, although railroad cars can be secured every day, a ship for a distant South American port may sail but once a month, and the resulting delay and poor service may result in the loss of this customer's future business. It should be the duty of the export department to back up its salesmen, write encouraging letters, act as a go-between with the export salesmen and the other departments of the company, and in every way make the foreign representative feel that he is being actively supported in everything he undertakes. The heads of the other sales departments are inclined to consider this view as extreme and advise modifying the export manager's plan. Because this company has erred in one extreme is no reason why it should now make the same mistake in the opposite direction. These men say it would be foolish for the company to try to cooper- ate on all the advertising and selling schemes the average salesman recommends, since he is too close to the con- ditions in his territory to get a broad view of the needs of the company as a whole. If the export manager had his EXPORT SALES FORCE 417 way, these men say, it would not be long before the entire company would practically be taking orders from the foreign sales force ; and as for giving right of way to foreign shipments, they are unable to see any reason why foreigners should not be compelled to take their turn with American customers, many of whom have dealt with the firm over a long period of years. To what extent can the different departments cooper- ate with the foreign sales force of the Volk Paint Com- pany? Problem 106 Kagan Company — Handling of Salesmen* The Kagan Company is attempting to increase its foreign sales in Latin America. This firm manufactures fountain-pen and drawing inks, and mucilage and glue put up in small containers for desk use. It has exported its products to Europe through its own salesmen, who are natives of the country in which they sell. In Latin America preliminary trips b}^ travelers have convinced the company that there is a large potential market in these countries for its products. The territory has, con- sequently, been subdivided into the following districts with a route laid out in each district requiring from four to six months to cover: Eastern Coast of Brazil River Platte region West Coast *In addition to the information to be found in Hough, Practical Ex- porting, Chap. VI; and Wyinan, Export Merchandising, the following periodical references reveal points of interest in connection with the han- dling of salesmen: Sales Management. Dee. 1919, p. 100— "Pitfalls Tliat Await Your Salesmen Abroad." Export Trade and Exporters' Review. Feb. 19, 1921, p. 5— "Special Private Cable Codes." Apr. 30, 1921, p. 66— " The Export Salesman's Return." Dec. 3, 1921, p. 5— "Making the Most of a Residence Abroad." 418 PROBLEMS IN EXPORT SALES MANAGEMENT Northern Coast and Central America Mexico West Indies The question which the Kagan Company is now fac- ing is whether to bring the salesman back to the factory for a short period after completing each trip, or to leave him in the territory for a period of two or three years. The policy of bringing the salesmen back to the factory at the end of each four or six months period would aid the company in keeping in close touch with the demands of its customers on the new market. If in Mexico City there was a demand for paste put up in special tubes with each tube packed separately in a bright colored carton instead of being packed one dozen in a box, it is important that the factory receive first-hand information of this fact. The details of these changes can be presented personally by the salesman to the production department in a much more satisfactory manner than by letter. Furthermore, by frequent visits to the factory the salesman will be in- formed of the new products that the factory is develop- ing, which will help him to build up a different story to be used on his next trip. He can also aid in straightening out any mistakes, misunderstandings, or difficulties that may have arisen in connection with his last orders. This step also enables the salesman to follow up each order personally so that he can assure the customer of the spe- cial care taken to give satisfactory service, thus securing better coordination between the foreign sales and the pro- duction departments. In the domestic market it is the policy of the Kagan Company to have its salesmen return to the factory at least once or twice a year for sales conferences and instructions on new products. By following the same policy with its foreign salesmen it shouhl ])e possible for the company to develop the same degree of efficiency and high morale now existing among the salesmen in the States. Because of living conditions and the greater dis- tance from friends and relatives, few salesmen care to live abroad permanently, although many are willing to EXPORT SALES FORCE 419 make trips to foreign countries if they know that they can return regularly at the end of four or six months; consequently, such a policy would make the foreign field more attractive and would help the company in building up an efficient, permanent sales force. This policy, how- ever, would be very expensive, since it requires from two weeks to a month to make the trip between Latin Ameri- can territory and the home office of the Kagan Company. During this time the salesman would, of course, be draw- ing his salary and expense money, although he would not be able to sell merchandise or keep in touch with the conditions in his territory and competitors would be able to operate almost at will. If a salesman is sent to the Latin American countries under a two or three-year contract, as is the policy of the Standard Oil Company in sending men to China, he establishes his home and headquarters in a large city from which he makes trips to surrounding districts. This practically makes him a permanent resident of the coun- try to which he is sent, at least for the period of two or three years, and he thereby becomes more familiar with the customs, language, habits, and ideas of the people to whom he must sell. He is always present to represent the company, if any difficulties resulting from delaved shipments, adjustments on shortages, and damaged goods arise. ^ Foreign customers frequently feel more confi- dence in a man who lives in their own country and to whom they can appeal for assistance at any time than they do in a man who makes a hasty tour of his territory to secure orders and immediately leaves for the States, often before they are filled. A salesman who is kept in South America on a two or three-year contract, however, IS not m close touch with the factory and is familiar with new products only through instructions by mail. In the case of English and German firms, their sales- men are frequently willing to become residents of the country to which they are sent. All the salesmen now in the employ of the Kagan Company, however, have inter- ests m the States and are not anxious to become perma- 420 PROBLEMS IN EXPORT SALES MANAGEMENT nent residents of a Latin-American country. Other companies have sometimes found that when such sales- men are sent away under a three-year contract, they fre- quently refuse to remain with the company at the end of that time because they do not care to be away from the States for such an extended period again. What policy should the Kagan Company adopt in handling its foreign sales force? Problem 107 The Volk Paint Company — Stimulation of Sales Force In the opinion of some of the department heads the failure of the Volk Paint Company's salesmen to secure as large a volume of orders in the Latin American mar- ket as had been expected is due to lack of proper man- agement of the sales force rather than to a great need for stimulation of sales. In the domestic field the company has always held sales contests between the different districts and has developed a keen sense of friendly ri- valry that has been reflected in rapid increases in the sales volume. Contests have also been held for individ- ual salesmen, the winners being given suitable prizes or bonuses or being made members of the Star Salesmen Club. These department heads recommend that the same methods, which have been so successful in the domestic field, should be used in Latin America in order to stimulate the company's foreign salesmen and induce them to put forth greater effort. Two of the department managers fail to see the wis- dom of this policy, claiming that such a scheme would be worse than useless for it would destroy much of the good now being done by the sales force abroad. Orders from South American customers depend upon friendship to a large extent. This foreign market must, therefore, be viewed as a long-time proposition. Under no condition should a foreign customer be hurried, particularly on the EXPORT SALES FORCE 421 salesman's first visit, nor should established customers be urged to over-stock as might be the case were a salesman attempting to win a contest. Conditions vary so in the different territories, with their changing climates, differ- ent industries, and different paint needs, that it would be practically impossible to place all the foreign salesmen on a comparable basis. A sales contest under these con- ditions would only promote jealousy and dissension among the salesmen themselves and cause them to adopt tactics which would result in the loss of customers later on. In place of a foreign sales contest these men recom- mend a close follow-up of all foreign sales work, not only by the export manager but by the president and other oflficials of the company as well. AVhenever a salesman succeeds in securing a particularly profitable order or induces an important dealer to stock a line, he should be written an encouraging letter congratulating him on his achievement and telling him that the company real- izes the hard work that has preceded the order and ap- preciates the salesman's efforts. If it is possible, this letter should be signed by the president of the firm in order to give it as much prestige as possible and to make the salesman understand that his eff'orts are really being watched not alone by his immediate superiors but also by the head of the firm. As is only natural this plan, too, has its opposition, several of the executive heads maintaining that, although letters of this type are all right for a while, before long they produce dissatisfaction for the salesman says to himself ''If the company keeps thinking I'm so good and wants to show appreciation of my work, why doesn't it raise my salary or do something worth while instead of sending me all these letters?" These men who are op- posed to the letter writing plan are aware of the difficul- ties in the way of establishing a quota in each of the foreign territories but they advise the company to tell each salesman that his territory should produce definite, concrete results in a year's time. If he is able to increase 422 PROBLEMS IN EXPORT SALES MANAGEMENT his sales above the point which the export manager con- siders an average salesman should secure his salary will be raised accordingly, but if he fails to reach this mark it will be necessary for him to look for a job somewhere else. What methods should the Volk Paint Company adopt for the stimulation of its sales force in the Latin Ameri- can field? Problem 108 VoLK F*AiNT Company — Control of Salesmen One of the difficulties the Volk Paint Company expe- rienced in its initial attempts in sending salesmen into the South American market was the loss of control of these representatives by the home office. In the domestic territories the salesman's itinerary is planned minutely in advance. The sales manager knows exactly which town each man is working and where he can be reached. Every morning the home office receives a report of the salesman's activities of the preceding day and knows with what success he is meeting. Any change in itinerary can be reported to the home office quickly by telephone or tele- graph, if necessary, and important price changes or spe- cial instructions can be transmitted in the same manner to the salesman. In South America this close contact cannot be main- tained, although the salesman may make weekly reports or the firm may send weekly letters of instruction. From Cuba and Mexico mail may be received in five days' time, but from other parts of Latin America mail requires from two weeks to a month to reach the company's home office in the States. Continual ca])ling is expensive and frequently impractical, for the salesman is in direct cable contact with the United States only at ports. In many inland towns there are no adequate telegraph or cable facilities, Messages are apt to become garbled in trans- EXPORT SALES FORCE 423 mission over poor lines through several stations. Only when sending instructions on price changes or other im- portant communications does the company consider the use of the cable to be warranted. Although the itinerary of its foreign salesmen is planned long in advance, so that the Volk Paint Com- pany knows at least the towns of importance which its salesmen will work, the itinerary cannot be followed as closely as in the domestic market. Not infrequently the salesman is delayed a day or two in making port because of the length of his voyage, the number of stops that are made en route, and an occasional storm. After he gets started in his territory he may find that it is necessary to take a few days longer than he expected to cover the dealers efficiently. Transportation is uncertain. Re- cently the company received no word for over a month from its salesman operating in Colombia and Vene- zuela. Cables were apparently ignored. The company could find no trace of him and it had just about decided to send another man to cover this territory Avhen it learned that in going from Barranquilla to Medelhn and Bogarta the salesman had been stranded for twelve days on a steamer in the Magdalena River. His telegraphic messages had failed to come through and all his letters had been held up until the next boat. Under ordinary conditions it might be possible to send all correspond- ence to the town in which the salesman expects to be on a specified date with the idea that it will be forwarded if he has left ; but in the newly developed regions, away from the coast, mails are uncertain, losses frequently oc- cur, and this method has been found to be unsatisfactorJ^ _ How should the Volk Paint Company control the activi- ties of its salesmen in Latin America ? (a) The Volk Paint Company has never required formal reports from its export salesmen, Imt has simply asked them to write letters giving information as to busmess conditions, detailing their experiences and including a simple expense report. AVould it be desirable to require daily or weekly reports! If so, what iuforma- 42i PROBLEMS IN EXPORT SALES MANAGEMENT tion should be included? Should special forms be pro- vided? (b) What policy should the company adopt concerning expense accounts? Its domestic salesmen are strictly limited as to the character and amount of items to be included in expense accounts. This general policy of strict limitation has not been applied to the export sales force, and the company has encountered occasional in- stances of padding of expense accounts, instances in which such an item as entertainment contained a great deal devoted to the personal entertainment of the sales- men but little of the type considered legitimate in busi- ness-getting in certain countries. Should a formal ex- pense report be drawn up in which the allowable items were detailed? How are expenses to be checked up? (c) The Volk Paint Company, in common with many other companies, has prepared and published a sales manual for the use of its domestic salesmen. The table of contents contains the following: Part I Salesmen's code; the house and its history; the organization of the company; the product; sales; equipment; standard sales presentation; points of contact with prospective customers ; answering objections to sales arguments; handling adver- tising inquiries ; organizing the territory. Part II Terms of sale; discounts; quotations; orders and shipments ; instructions as to credits ; allowances ; daily reports; agency contracts; expenses. It has been found that such a manual is valuable in training domestic salesmen, in giving them a reference work, for refreshing their memories while in the field, for making unnecessary correspondence asking for infor- mation, and for removing many of the causes for friction and dispute between sales force and management. Is a sales manual desirable for tlie export sales force? If so, what points should it cover! CHAPTER IX FOREIGN BRANCHES A STUDY of some of America's most successful concerns in the export tield gives ample proof that distribution through branches may under proper conditions be a most brilliantly successful method. Such concerns as the National Cash Register Company, the U. S. Steel Corporation, the Singer Sewing Machine Company, the Allied Machinery Company of America, and numerous others have for many years maintained branches in various parts of the world which are re- garded as the most important elements in their foreign trade organization and in selling in foreign markets. Yet even these powerful corporations have established branches not in all cities, but only at strategic points. No concern finds it advisable to establish branches indis- criminately. Unfortunately, the failures of many concerns to ex- port goods successfully through branch organizations are not matters of record and the peculiar dangers of the method are likely to be underestimated because we hear of the successes and not of the failures. Branch distribution offers of course the most intensive means of developing a foreign market. It is also the method which requires the largest outlay both for initial estab- lishment and for maintenance from year to j^ear. On that account a self-supporting market worked by a branch must yield much larger volume than a market which is self-supporting but worked through agents or by salesmen. American concerns, which have established branches in foreign countries, have differed in their poli- cies as to allotment of functions to foreign branch estab- lishments. Such concerns as the International Harvester 485 426 PROBLEMS IN EXPORT SALES MANAGEMENT Company, the Eastman Kodak Company, and others have found it wise to establish branch manufacturing estab- lishments, as well as more numerous selling branches. There are a number of factors which may make it espe- cially advisable for certain firms to establish branch fac- tories, among which may be mentioned particularly tariffs, trade-mark and patent laws, and cost of produc- tion. The most common form of branch is a selling estab- lishment in which the American exporter carries on what amounts to a wholesale business in his product or line of products. These branches sell to dealers of various classes and sometimes to large consumers. The questions of pol- icy which arise with respect to the management of such branches are much the same as those in the domestic market. Branches which are so operated as to give impression that they are competing actively with dealers may narrow the market for the manufacturer's goods rather than widen it. In other words, the branch which sells to retailers, and attempts at the same time to sell to wholesalers who expect to sell to the same retailers, may so antagonize wholesalers that the product will not be handled and that ultimately many dealers who are not reached by the branch will not handle the goods. A third form of branch is that which sells at retail to consumers. Just as comparatively few manufacturers in the domestic market attempt to market their goods through their own stores to consumers, so there are com- paratively few in the foreign markets who establish their own retail stores. Certain shoe concerns have estab- lished stores successfully,, but manufacturers' retail stores furnish many pitfalls. Losses have been frequent in both domestic and foreign markets, and in the latter the danger is of course greater. In the organization and operation of branches, much depends upon the philosophy of management which pre- vails in the enterprise as a whole. If strict and detailed control is insisted upon in all departments of the con- cern and responsibility is shifted from level to level through the chief executives, then the organization and FOREIGN BRANCHES 427 operation of the branch will differ in essential details from the organization of a branch which is regarded as a semi-independent selling company. The following outline mentions a number of problems connected with the organization and operation of foreign branches : A. Location and Establishment of Branches. Under what conditions shall branch factories be established ? What considerations should determine location? When should wholesale branches be established? How should location be determined? Should the manufacturer, who operates retail stores in the United States, attempt to operate retail stores in foreign cities ? B. Organization of Foreign Branches. What should be the relation of the foreign branch to the home office? Should the branch be a practically independent institution or should it be subject to close and detailed supervision? Should branches carry stock? Should branches pass upon credits? What should be the authority of the branch with respect to advertising? Under what conditions should branches be incorporated? C. Selection and Training of Branch Managers. What are the sources of branch managers? Should branch managers be selected from the company's export sales force or from the home office or plant? Should natives or Americans be used as branch managers? How should branch managers be trained? Should the branch managership be regarded as a step in the promotion of export salesmen? 428 PROBLEMS IN EXPORT SALES MANAGEMENT D. Supervision and Control of Branches. How should branches be supervised? What records should branches keep? What reports should branches make to the home office? Problem 109 Marshall Ink Company — Retaining or Abandoning Foreign Branches The Marshall Ink Company is having difficulty in maintaining its volume of foreign sales on a profitable basis. For several years it has maintained branches and warehouses at Copenhagen, London, Lyons, Buenos Aires, Mexico City and Hong Kong. These branches were established when the product was being introduced in order to enable the company to furnish quick service to its customers. It also was an aid to salesmen in sell- ing goods if they could say "Not only have we a large factory in America which produces the best ink that can be made anywhere, but, in addition, we maintain a ware- house here in your own country in order to serve your needs promptly." Now, however, sales are falling off and retailers are using the branches to carry stock, call- ing on them only for small orders to fill a week's supply. These small shipments require so much attention and additional work that the company is not making a reason- able profit on the amount of foreign business that it is still carrying on. One of the salesmen has suggested that since the branch houses are being abused and are expensive to maintain, they should be withdrawn. He says that it has been his experience that when a customer realizes that a traveling salesman will make but one visit in six months or a year he buys large amounts in anticipation of his *Foreigii branelicB are treated by Tlough, Practical Exporting, pages 309-310; Dudeney, The Exporter's Handbook and Glossary, Chap. XII; and Wolfe, Theory and Practice of International Commerce, Chap. XVIII. FOREIGN BRANCHES 429 requirements for the entire period. Once he has a large order on his shelves in which his money is tied up, it is to his interests to push the sale of the product and he acts accordingly. By abolishing the branches and ship- ping direct from the factory, the company would be able to economize substantially, since it would not have the expense of a. branch manager, w^arehouse man, and book- keeper, nor would it have to make any payments for local taxes on a branch organization, nor for rent, heat, and light. When told that the withdrawing of the Marshall Ink Company's branches from these countries would make it unprofitable for the small dealer to carry the company's products, since his order would be too small to export profitably, the salesman said that the company must build Tap a clientele among foreign wholesalers to handle the business of the small dealers. He suggested that when- ever a salesman visited a large city he should spend two or three weeks calling upon the small retailers and se- curing their orders, which he would turn over to the wholesaler. The wholesaler would then order the total amount of these orders direct from the company and in addition, should order an additional amount sufficient to take care of his requirements during the next six months. Should the Marshall Ink Company adopt the recom- mendations of its salesman? Problem 110 Waldron Piano Company — Establishment of Branch Factories and Assembling Plants (a) From the time that square pianos were first in vogue until the present date the Waldron Piano Company has occupied a strong position in the domestic market. Having established a reputation for producing a musical instrument of the first quality, whether grand or upright, the company has increased the demand for its product by 430 PROBLEMS IN EXPORT SALES MANAGEMENT manufacturing a player attachment, thus making it pos- sible for even the untrained musician to use the Waldron piano. In the foreign field the company is operating branches in London, Paris, Madrid, and Melbourne, Ade- laide, Brisbane and Sydney; special agents carry Wald- ron pianos in all the South American countries. Within the past few years the sales volume has in- creased to such an extent that the company's American factory has outgrown its present fapilities and must be enlarged or a second factory secured. Because of the wide sale of Waldron pianos abroad, the establishment of a Waldron factory in England is now being urged. Although the sales in Great Britain alone scarcely war- rant such a step, were a factory once established there the exports to Spain, Australia, New Zealand, India, and even to Brazil and Argentina might be handled from Lon- don to better advantage than from New York. By serv- ing these markets the volume of sales would be ample to warrant the establishment of an English plant. A number of advantages would accrue from such a step. In the first place the British colonies allow English goods to enter free, or at least with a comparatively low duty. The saving thus realized would be substantial, since the duty on pianos imported into British colonies from oWu^r countries is sometimes as high as 35%. Since there is a natural feeling among English people in the colonies to give preference to British goods, it is frequently easier to sell pianos made in England than those manufactured in some other country. From London to Rio de Janeiro and Buenos Aires steamship service is more rapid and freight rates are lower than from Now York. The balance of trade be- tween England and Argentina is favorable toward ex- ports from Great Britain and many South American? favor trading with European countries rather than with the United States because of their closer associations The exchange rates enable British manufacturers to quote better prices in the foreign field than American exporters, and inasmuch as labor plays a large part in FOREIGN BRANCHES 431 the production of pianos, the lower wage scale and pro- duction costs in England are also favorable. Even if a factory were established in England the northern and western coasts of South America would continue to be handled from New York City, because of shorter transportation routes and closer proximity to the United States. As a result the exporting of Waldron pianos -to Latin America would be divided between the English and American factories instead of being handled under one head. Because of high freight rates, Canadian business would also be handled from the New York office. By establishing a factory in England, therefore, the com- pany would lose some of the efficiency resulting from centralized control of the purchasing, planning, operat- ing, and selling functions. Would it be advisable for the Waldron Piano Company to open an English factory? (b) The Waldron Piano Company is faced with the question of whether or not it should establish a plant in Australia for the assembling of its pianos. For a long- time the company has felt the burden of heavy freight charges, which because of the long voyage have been suf- ficient to wipe out all but a nominal profit on its Aus- tralian business in spite of the fact that the company has substantial sales in that territory. The people are progressive, many have made small fortunes in mining, manufacturing, and stock raising, and even those w^ho have not been so fortunate financially are frequently ready to spend what money they have for good furniture, pianos, and house furnishings. At the present time the Waldron Company operates branches in Melbourne, Ade- laide, Brisbane, and Sydney, and its sales are increasing more rapidly here than in any other foreign field. If an assembling plant were established, the company would be able to secure much lower freight rates, since piano parts not only take up less room than a completed piano but also can be shipped under a lower rate classifi- cation. Likemse, there would be a saving in duty inas- much as the Australian custom law allows piano parts to 432 PROBLEMS IN EXPORT SALES MANAGEMENT enter the country at a lower rate than finished instru- ments. An assembling plant for pianos would require neither complicated machinery nor a large amount of equipment. The costs of delivering a finished piano to the company's branch salesrooms in Australia would be materially lessened by the establishment of this plant. Although high-grade furniture makers would be able to do most of the work, there would be some danger of th1« (if Any) m» vtil U crophetor't. or &nB f „-_.Completc Address. _ -. PLEASE DATE HERE I (or we) make the following statement of all my (or o , I9.„ i and liabilities as at the close of business on. Based on actual inventory made. „_ _^..., 19 ™-. •nd give other material information for the purpose of obtaining advances on notes and (or) acceptances bearing my (or our) signature or endorse- ment, and for obtaining credit generally on present and future applications. (PLEASE ANSWER ALL QtTESTIONS AND FILL IN ALL BLANKS) Cash on Hand and in Banks Accounts Receivable (Not Due) Accounts Receivable (Past Due — Collectible) Notes Receivable (Not Due) Notes Receivable (Past Due— CoUcctiblr) New Automobiles at Cost (See Remark No. 2) Freight on above cars (if carried on your books let)... Second-hand Cars and Cars for own use. Demonstrating Cars. Automobile Parts Automobile Sundries and Accessories,. Oil and Gasoline (for sale) _ Other Merrhandise (What kind?) Deposits with Manufacturers or Distributors... Other Qiiick Assets— What? TotaJ Quick Assets L*nd and Buildings Machinery, Tools, Shop Equipment, Pumiture and Fixtures- -. Other Assets (Describe) Amounts, Not Estimates LLABILITIES Owing for Automobiles (See Remark Owing for Parts C>wing for Tractors. Owing for Other MeTchandise.— — Borrowed from Banks: On Unendorsed, Unsecured Notes.. Oi Notes Endorsed by: On secured notes. What secunty? Borrowed from Others Prom Whom? Sub-Dealer Defiosita Reserve for taxes, etc _ Other Curreait I labdities What? Total Current LlabIUtie& _ Mortgages on Real Estate.—. When Due? Chattel Mortgai,es When Due? , Reserves other than those above — for what?,.. /Opilal $ NET WORTH Vsurplufl S. Give Exact Amounts, Not Estimates TOTAL ASSETS TOTAL (should equal Total Ass'.'ts) -_. With what banks do you deal? How much will first bank lend you ufisecured? With security — of endorsement or collateral? How much will second bank lend you unsecured?.., Withsecurity — of endorsement or collateral? Sales Past Twelve Months Parts and Other Merchandise Repairs TOTAL SALES Total Operating Expenses Net Profit<; Signed thif day of_ , 19 Name- REMARKS 3 required at top of page. By- t FORM 15. Savoy Shoe Company — Credit Report Form — Reverse 488 PROBLEMS IN EXPORT SALES MANAGEMENT gatioii of each reference is made, the credit department writing letters to each firm asking the terms granted, the complete history of the business of the distributor as far as is kno^vn, the character of the business and the capa- bility and character of the directors or management. In addition, reports are secured from Dun's, Bradstreet's, and the Foreign Credit Interchange Bureau. The current items of the balance sheet are then trans- ferred to the following form, where the assets are scaled down and a credit limit established: CREDIT LIMIT ANALYSIS STATEMENT Date Name Address. Scaled Quick Assets Current Liabilities Net Scaled Quick Assets- Ratio - Credit Base Retail Limit Wholesale Limit.. SCALED STATEMENT Quick Assets Cash Accts. Rcvble (not due) Accts. Rcvble (Past due) Notes Rcvble (not due) Notes Rcvble (Past due) New Autos (cost) ., Used Autos Auto Parts Sundries and Access Oil and Gasoline Deposit with Mfrs EXPORT FINANCING AND CREDITS 489 Current Liabilities Owing for Autos Owing for Parts Owing other Mdse Borrowed from Banks Borrowed from Others REMARKS : Scailed by Approved by. In scaling down these assets the company must take into consideration the dealer's location and the condi- tions affecting his business. The following percentages of reductions, however, are more or less typical of the methods used in scaling down the assets of foreign dis- tributors: Item Percentage of Reduction Accounts Receivable 20% to 25% Under doubtful conditions this per- centage is increased as high as 35%. Notes Receivable 20% to 25% During a business depression this item is frequently depreciated 30% to 35%. New Automobiles 10% This depreciation is made to cover price changes and changes in business conditions. In case a drastic price cut has been made, a correspondingly larger percentage of depreciation is made. 490 PROBLEMS IN EXPORT SALES MANAGEMENT Used Automobiles 50% to 60% Usually a second-hand car cannot be sold under stress anywhere near the price at which it is valued by the dealer in making his financial state- ment. Automobile Parts 40% Most dealers carry a fairly large stock of automobile parts in order to keep the cars of their customers in operating condition. Nevertheless, be- cause of -new models being brought out these parts depreciate rapidly in value and the demand for them is uncertain. Automobile Accessories 50% Accessories are usually regarded as ' ' frills ' ' and therefore, cannot be sold at their original value or returned to the company at their full value in case of financial stress. Oil and Gasoline 40% Although oil and gasoline are staple supplies, they are subject to fire loss, leakage, and other losses which re- duce their value as an asset. General Merchandise 40% to 60% The automobile frequently is re- garded as a luxury abroad and is sold nowhere in such numbers as in the United States. Many of the dealers, therefore, frequently carry saddles, harnesses, leather goods, and other general merchandise in order to cater to the large portion of trade which still uses horses, pack mules, and other draft animals. EXPORT FINANCING AND CREDITS 491 Slow Assets The stock of other companies and other slow-moving assets are not easily investigated and the percent- age of depreciation depends entirely on the companies whose stock is held. Current liabilities include at least 10% contingent lia- bilities, and mortgages and similar long-time liabilities are considered current if they come due mthin the year. Merchandise is listed as an asset, but a dealer may be so overstocked that in reality this item is more of a drag than a help. Although loans from a bank give a good index of the company's credit standing, it is necessary" to know whether or not they are secured. In Mexico, for example, it is reported that a company must pledge its accounts receivable in excess of 40% of the loan. Great care is also taken to investigate each item, since round figures usually indicate that a dealer is making estimates rather than keeping an accurate set of books. "When the total scaled current assets and current liabilities have been determined, a ratio of 2 to 1 or 1% to 1 of scaled quick assets to current liabilities is required and the credit limit is established accordingly. If the bal- ance sheet is not good enough to warrant the extension of credit, frequently these facilities can be extended by securing additional backing from directors or other mem- bers of the firm. A guarantee fund of from 10% to 20%? of the total value of the shipment is required in order to insure the company against loss from the payment of insurance and freight in case the shipment is refused. Usually a permanent arrangement is entered into, where the fund is deposited A\dth the company as long as it continues to finance shipments for the distributor. Interest is paid of course on this fund, which is returnable on re- quest if the accomits of the distributor are clear. This guarantee fund may be made in the form of cash in New York, or a confirmed irrevocable letter of credit from a bank of proper standing which mil be available against ''clean drafts" in lieu of a cash deposit. 492 PROBLEMS IN EXPORT SALES MANAGEMENT It is also necessary to find out what credit terms are being granted by the distributor to subsidiary dealer organizations. If the customers of a large distributor demand credit, it is frequently necessary in order to handle this business that he be granted longer credit terms than ordinarily. Even after the credit limit has been established, care is taken to keep the information up to date in order to keep abreast of changing conditions and avoid loss. During periods of fluctuation in foreign exchange, applications for extended credit must be watched in order to be sure that they are not made for purposes of gambling in foreign exchange. A customer accepts the draft expecting that exchange will appreciate before the due date. In case the rate of exchange goes the other way, he may be in worse shape to pay the draft than he would have been had he paid it at sight.* To take care of this difficulty German firms sometimes fol- low the practice of making credit reserves to meet long- time credit risks, but the Jefferson Automobile Company has not deemed it advisable to make an added charge to all distributors in order to build up such a reserve. Problem 127 Whitmore Rubber Company — Foreign Credit Association Many American manufacturers have been experiencing not a little trouble and annoyance from foreign credits. Because of the rates of exchange these foreign houses are forced to pay high prices for American goods at a time when their capital is tied up because of the general business depression. Some of the firms are finding it difficult to meet their obligations ; consequently, the com- *In January 1921, the Jefferson Antoniobilo Company shipped twelve cars to a dealer in Ilelsingfors, Finland, on 90 day terms, documents against acceptance. At the maturity of the drafts, an extension was requested because the cars had not been sold and the distributor desired an oppor- tunity to sell before meeting the obligation. As the exchange rates dropped lower and lower it was increasingly difficult for the dealer to meet his obligations, additional extensions were requested, and the company was finally forced to settle at a loss. EXPORT FINANCING AND CREDITS 493 panies, which appeared to have a satisfactory credit rating in the credit reports of commercial agencies and which have always paid their bills promptly in the past, are now failing to meet their obligations when they are due. The experience of the Whitmore Rubber Company has been no exception to this rule. This firm manufactures rubbers, overshoes, and sneakers, a large number of which are exported to South America, Mexico, West Indies, Australia, New Zealand, and the Far East. It has been granting credit to customers based upon its experience with them in the past and upon the reports of commercial agencies. These reports are based to a considerable extent on correspondence, the age of the company, an estimate of the capital employed in its financial statement for the past year, information as to the character and financial standing of members of the firm, and information as to the promptness with which it paj^s its bills through the banks. Fre- quently the commercial agency's representative in a foreign city is a bank or lawyer in good standing. The reports have generally been reliable in the past and cost about $1.50 if secured under contract and from $2.50 to $5.00 without a contract, depending upon the country. Reputable houses which have always paid their bills in the past, frequently claiming their discounts, are now not paying their bills prompth' nor are they always meeting them when due. These firms are not insolvent but they lack ready capital with which to pay for their goods. The company is therefore anxious to secure addi- tional credit information, where possible, and to this end has asked its salesmen to turn in reports on a num- ber of customers. Recently the credit manager of the Whitmore Com- pany was approached with the proposal to join the Mu- tual Foreign Credit Interchange Bureau established by the National Association of Credit Men. This bureau has been organized by almost two hundred American manufacturers to secure additional information upon 494 PROBLEMS IN EXPORT SALES MANAGEMENT the credit rating of foreign cnstomers. A charge of $75 a year is made for membersliip, which entitles the firm to one hundred free reports. Additional reports may be secured at the rate of 75c each. Each member is required to file at the headquarters of the bureau a com- plete list of his foreign customers, with information as to the past credit relations with each customer. This information is kept up to date by interchange reports from the different manufacturers, containing the follow- ing items : How long sold. Number of days past due. Terms of sale. Manner of payment. Highest recent credit. Credit limit. Date of last dealings. Credit declined. Amount now owing. Comments. Amount past due. Supplementary reports contain the following items of information : Capital. Volume of business. Number of employees. Relative size of house. General reputation. Class of goods handled. Languages of correspondence. Character of business organization. Names, ages and nationalities of partners, etc. If a member of the credit bureau should desire a report on Balmaceda & Company, Rosario, he would send his request to the bureau's headquarters where reports of several thousand firms are on file. If a report of this firm is on hand, when the request is received, a copy is sent to the inquiring subscriber by return mail. If nothing is available from the files, the firm's card is looked up and an inquiry sent to each subscriber whose number appears thereon, indicating that he has had experience with the particular firm under investigation. "When these subscribers rejjly, their answers are incor- EXPORT FINANCING AND CREDITS 495 porated in the form of a preliminary report and sent to the inquirer from five to seven days after the inquiry is made. With the preliminary report, if available, there is sent the supplementary information regarding capital, reputation, etc., of the firm. At the end of two weeks, information received during the interim is incor- porated in a completed report and sent to the inquiring subscriber. In response to information furnished by a member on any account, there is automatically returned to that member a complete gratuitous copy of the entire report. The chief objection of the managers of the Whitmore Company to joining this bureau is the requirement to furnish a complete list of its customers to the bureau. Competition in the rubber business has been keen and the managers of the company are afraid that rivals might secure a list of their customers and seriously hand- icap their future sales in the foreign field. They are also dubious as to the amount of time required to make reports to the bureau for the benefit of other customers, since they have done business with over 7,000 foreign houses, and might give more assistance to the bureau than they would receive. Furthermore, the credit bureau has not been established so long as the commercial agen- cies and it has not so many sources from which to secure information. Would it be advisable for the Whitmore Rubber Com- pany to join the Mutual Foreign Credit Interchange Bureau?* *See Addenda 2 on pages 538, 539, 540 and 541. 496 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 128 Pike Company — Credit Insurance* The Pike Company, like many other American manu- facturers, has been experiencing considerable difficulty in securing prompt payment of its foreign bills. This firm manufactures filing cases and indexes for office use, a substantial number of which are exported to the West Indies, South America, Mexico, Australia, New Zealand, and, to a limited extent, to the Far East. In handling this foreign business the company deals direct through its own salesmen, all orders being filled from the factory in the United States. The terms are usually 60-day or 90-day sight drafts, unless a customer's credit report is unsatisfactory, in which case cash is required against documents in New York. Although the credit reports of the customers who are given 60- or 90-day terms are satisfactory and they accept their drafts, not a few fail to make payment when these drafts fall due. These customers do not go into bank- ruptcy, assign accounts, or go out of business. The rates of exchange are against them ; therefore, they must pay high prices for American goods. Business condi- tions in their countries are unfavorable. As a result these customers have a smaller volume of trade than usual, and being short of funds they fail to make pay- ment when due. It is possible that the majority of these firms may make some adjustment or arrangement for payment at some future date, but undoubtedly the com- pany will be forced to write off at least 5% or 6% of its present foreign accounts as bad debts. *The subject of credit insurance lias been discussed at the annual con- ventions of the National Foreign Trade Council, as follows: 1918, p. 435, George E. Meyercord — "A Credit Insurance Plan for Smaller Manufacturers. ' ' 1920, p. 469, George U. Meyercord — ' ' Foreign Credit Insurance. ' ' 1921, p. 80, F. D. Rock— "The Foreign Credit Department, Its Or- ganization, E(iuipment and Attitude. ' ' 1922, p. ."142, L. R. Browne — "Guide Posts in Foreign Credit Granting," EXPORT FINANCING AND CREDITS 497 To forestall a recurrence of this difficulty the credit manager is considering taking out credit insurance on foreign accounts with tho American General Credit Insur- ance Company. This insurance company has made up lists by countries of the credit ratings of foreign buyers and merchants on whom its insurance rates are based. Oppo- site the name of each concern is set the amount of credit which can be insured, varying from $500 to $10,000, and the premium rate for 90 days, which varies from 1% to 21/2% by 1/4 points. A foreign house may be rated as follows : Leon Gonzales, Valparaiso, Chile — Credit Limit $1,500 — ^Rate 1%%. This means that the insurance company will insure the payment of any bill of goods sold to Leon Gonzales up to $1,500, at a rate of 1%% for 90 days, against insolvency within that time limit. In case an extension of terms is agreed upon, the insurance can be extended for another 90 days at the same rate. Should the Pike Compam^ take out credit insurance on its foreign accounts? Problem 129 New England Hardware Company — Granting of Credit on Open Account Terms In September 1915, the firm of Romanos & Garcia, Bogota, Colombia, applied to the New England Hard- ware Company of Boston for a line of credit. The New England Hardware Company had no agent in Colombia and had no means of checking up the South American firm except through the credit files of the bank which handles its export business. In its letter of application the South American firm stated that it conducted a wholesale hardware business. The management thought a business of $10,000 to $15,000 a year with the New England Hardware Company could be effected during the first year or two, with the prob- 498 PROBLEMS IN EXPORT SALES MANAGEMENT ability of more business at a later date. The firm had never imported from the United States, bnt had had rela- tions with English and German manufacturers ; in 1915, however, because of the war it was forced to turn to American hardware manufacturers. The New York bank was able to furnish the statement of a commercial credit agency, as well as the report of one of its own correspondents, concerning this firm. The following is an extract from the commercial agency re- port dated June 1914. "This firm was established in 1908, and is composed of Pedro Romanos and Ricardo Garcia, both natives of Spain; aged 33 and 36. Initial capital was very small. "The formal partnership contract was dated February 25, 1909, and extended four years, with the stipulated capital of $15,000 (gold), equally contributed by the partners. "They are at present operating under a newly registered partnership contract dated April 2, 1913, to run for a term of four years, with a declared capital of $100,000, equally con- tributed by the partners. Profits are to be divided equally ; all partners are active and responsible, and have the use of the firm's signature. At this date the partner Garcia was in- terviewed, who confirmed the above details of contract of April 2, 1913, and said that between installations, merchandise, etc., there is an investment of $150,000 (gold). Fire insurance for $100,000 is carried ; while he added that accounts receivable amount to some $3,000 and that there is no indebtedness of any kind. The monthly movement of stock is $18,000. Apart from the business investment, none of the partners make claims of outside means. "From investigations made locally it is learned that this firm is favorably regarded ; their business methods are satisfac- tory, and it is generally believed that they are operating with good results. Their claim as to business investment is believed to be more or less correct. "Personally the partners have always enjoj^ed excellent repu- tation and are considered industrious men of good morals and intentions, who have always given close attention to their affairs, and through economical administration and efficiency have suc- ceeded in making progress the last few years. "Nothing of a detrimental nature is heard against their com- mercial transactions. They have the name of complying cor- rectly and punctually with their obligations, and their present EXPORT FINANCING AND CREDITS 499 liabilities are not believed to be of importance. They generally are reported to discount their purchases at 30 days, without any amount of complaints up to the present writing, and in view of the foregoing the signature can be classed as an ac- ceptable connection for their ordinary business accommodation." Below is the bank's report from its correspondent on this firm: •'Partnership deed dated April 2, 1913. Valid for four years. Active partners — Pedro Komanos and Ricardo Garcia. Capital — $100,000 (gold) — invested by the partners in equal shares. " . Agency reports: ''Firm established in 1908. Two branch offices in Bogota. They seem to trade with a capital of $50,000 (gold), and the stock of goods thev possess is valued at $78,000 to $80,000 (gold)" Trade reports : No. 1 — "Thev have been clients. of ours for the last ten years. Credit— $6,000 to $8,000 (gold) Former clerks of Lopez & Company'. They are well regarded on the market. "No. 2 — Credit — $5,000 (gold) which thev discount punctu- ally. "No. 3 — Morally they are very good. Capital — unknown. Analysis of Balance Sheet — June 8, 1914. Assets Cash on hand and in banks $ 4,909.77 (gold) Accounts Receivable of Customers 20,317.71 (Finished Merchandise (Unfinished 112,003.41 (Raw $137,230.89 Furniture and Fixtures 12,209.15 Partners' Special Account 6,284.49 Total— gold pesos $155,724.53 500 PROBLEMS IN EXPORT SALES MANAGEMENT Liabilities Notes payable for merchandise $ 16,000.00 Accounts payable 28,152.91 $ 44,152.91 Bills due 1,120.00 Total liabilities $ 45,272.91 Partners' Special Account $ 10,451.62 Capital 100,000.00 Total— gold pesos $155,724.53 The South American firm requested credit terms of 90 days and expressed a desire that they be granted open book credit. How much credit should the New England Hardware Company extend to this firm in view of the statements which they received? What terms should they use in carrying on business with the firm? Problem 130 Arabian Steel Company — Cancellation of Letter of Credit* On August 5, 1918, the Lamond National Bank of New York received a cablegram from its branch in Buenos Aires, dated August 4, asking for quotations on 10,000 cases of tin plate I. C. Prime, 20"x28", 112 sheets per case, weighing 214 lbs. net, the inquiry having been made by the firm of Blanco & Fernandez. At that time tin plates were being conserved in the United States because of war demands, but after address- ing inquiries to various steel companies the New York bank received a quotation dated September 3 from the Arabian Steel Company of New York City, of $26.00 per box of 214 lbs., f. o. b. New York, with delivery of 90 days. *See Addenda 3 on pages 542, 543, 544 and 645. EXPORT FINANCING AND CREDITS 501 On September 6 the bank cabled the following to the branch : "TIN PLATE HAVE OFFER TWENTY FIVE DOL- LARS EIGHTY CENTS FOB NEW YORK PER BOX TWO HUNDRED FOURTEEN POUNDS DE- LIVERY ABOUT NINETY DAYS SUBJECT EX- PORT LICENSE UNDER NEW GOVERNMENT RULING BLANCO AND FERNANDEZ SHOULD ORDER DIRECT FROM ARABIAN STEEL COM- PANY NEW YORK." On September 20 the branch cabled to the home office : "REFERRING TO YOUR TELEGRAM BLANCO AND FERNANDEZ CABLING ORDER DIRECT TO THE ARABIAN STEEL FIVE THOUSAND CASES TIN PLATE FORMAL DECLARATION FOLLOWING BY MAIL GUARANTEE CABLE BY UNITED STATES CONSUL CREDIT ACCORD- INGLY INSURANCE COVERED HERE." On September 23 the bank quoted this cablegram to the Arabian Steel Company and asked when shipment might be made. They replied by requesting more infor- mation as to the ultimate use of this tin plate, since this information was required by Government regulations then in force. Since the information desired was con- tained in the consular certificates received from the branch as suggested in their cable of September 20, these were forwarded to the Arabian Steel Company on November 1. Attention was called to the notation that marine and war risk insurance were to be covered by the consignee and that it would be necessary therefore to cable the consignee when the goods were shipped. On November 5 the branch confirmed a cablegram of that date, in which they requested the head office to notify the Arabian Steel Company that credit had been opened in their favor to cover the order of tin plate in accordance with the Branch's cable of September 20. The last paragraph of the letter of November 6 to the head office read : "Kindly note this credit, which is numbered 942, is valid until December 31 next, so that shipment will have to be ef- fected before that date." 502 PROBLEMS IN EXPORT SALES MANAGEMENT On December 10, 1918, the branch cabled : "CANrp:L CREDIT ARABIAN STEEL COMPANY CUSTOMER CONSIDERS ORDER VOID BE- CAUSE OF DELIVERY PERIOD YOUR TELE- GRAM OF SEPTEMBER SIX NOT COMPLIED WITH NOTIFY." The New York bank consulted with the Arabian Steel Company and at their request sent tlie following cable- gram to the branch on December 13 : "ARABIAN COMPANY STATES STEAMER SPACE SECURED FOR EARLY NEXT WEEK MONEY LOSS LARGE CAN YOU ARRANGE RE- INSTATEMENT CLAIM DELIVERY AS OR- DERED RI^SH REPLY" On December 16 the branch cabled the following reply : "TIN PLATES WERE TO FILL PRESERVE BOXES CONTRACTS HAVE BEEN CANCELLED WITH CUSTOMER THEY HAVE NO RECOURSE ON ACCOUNT OF LONG DELAY AFFIDAVIT OF RESTRICTION DOES NOT ALLOW PLACING BUSINESS ELSEWHERE SHOULD HAVE SHIPPED WITHIN NINETY DAYS OFFER CAN- NOT BE REINSTATED MANY SIMILAR CASES OCCURRING ON ACCOUNT OF ALMOST COM- PLETE CESSATION STEEL SHIPPING FACILI- TIES DURING LAST MONTH THE IMPORTERS VERY MUCH PREJUDICED" On December 24, at the request of the Arabian Steel Comjjany, the bank cabled the branch as follows : "ARABIAN COMPANY IN ABSENCE OF CREDIT ASK NEGOTIATION DOCUMENTARY DRAFT BLANCO AND FERNANDEZ COVERING SHIP- MENT IS RISK GOOD" To this the branch cabled a reply on January 2 read- ing : "TIN plate' quoted NOW EIGHTEEN DOL- LARS DELIVERED WAREHOUSE ADVISE ARABIAN NOT TO SHIP UNLESS SOLD ON SOUND BASIS" EXPORT FINANCING AND CREDITS 503 Meanwhile, however, the Arabian Company had re- ceived a cable from Blanco & Fernandez dated December 21, 1918, which read as follows : "IMPOSSIBLE TO OPEN CREDIT WILL AC- CEPT TIN PLATE AGAINST BILL OF LADING HERE IF LOADED DATE AGREED UPON." On the strength of the last-mentioned cablegram the Arabian Steel Company made shipment on January 9, and delivered to the bank ocean bills of lading dated De- cember 30, 1918, for shipment on the "S. S. Carolina" of 3,050 boxes of tin plate in two lots. Marine and war risk insurance were taken out by the shippers with an American company, presumably because credit had been cancelled. Another bank negotiated the draft cov- ering the remainder of the shipment of 1,950 boxes. On December 31 the Arabian Steel Company had cabled Blanco & Fernandez that the tin plate was shipped, and on January 8 received this cable from that firm: "TIN PLATE NOT HAVING BEEN SHIPPED WITHIN TIME STIPULATED WILL NOT BE ACCEPTED BY US" On January 10 the Arabian Company replied direct : "TIN PLATE SHIPPED AS PER OUR CABLE DE- CEMBER THIRTY FIRST AND DRAFTS DRAWN AS PER YOUR CABLE AUTHORITY DECEMBER TWENTY EXPECT YOU THEREFORE TO PAY ON PRESENTATION OR WE HOLD YOU RE- SPONSIBLE" On the 15th Blanco & Fernandez replied: "WE AUTHORIZE YOU TO DRAW FOR SHIP- MENTS MADE WITHIN DATES OF CONTRACT FOR LATER SHIPMENTS WE WILL NOT AC- CEPT" On February 1 the New l^ork bank cabled the branch as follows : "OUR COLLECTION NO. 5918 BLANCO & FER- NANDEZ SEVENTY NINE THOUSAND FOUR HUNDRED TWELVE DOLLARS MAILED JANU- 504 PROBLEMS IN EXPORT SALES MANAGEMENT ARY TEN ACCEPT PAYMENT LESS FIVE THOU- SAND SEVENTY FIVE DOLLARS ALLOWANCE ON FREIGHT" On February 24 a branch cable contained the following sentence : "COLLECTION BLANCO AND FERNANDEZ RE- FUSED ACCOUNT NON COMPLIANCE CONDI- TIONS OF DELIVERY" Is the contention of the consignees as outlined in branch cablegram of December 10 just and correct? Was the Arabian Steel Company justified in making shipment to Blanco & Fernandez when it did I What action should have been taken by the management when notified of refusal of acceptance? Problem 131 Harris Hardware Company — Determining Whether or Not Credit Should be Granted to Foreign Customers The Harris Hardware Company is attempting not only to hold its present customers in Latin America, but also to double its last year's sales of $123,000 in that field. Since the firm sells mainly to wholesalers and large re- tailers who are accustomed to receiving long terms, the granting of credit is an important step in securing their business. Because of its strong financial position, how- ever, the Harris Company is prepared to meet this de- mand for credit wherever sound business judgment war- rants its use. Bearing in mind this policy of the com- pany, the credit manager must make a decision as to whether or not the following requests for credit and credit extensions should bo granted: Azopardo y Vilaseca, hardware retailers in Santiago, Cuba, have ordered $4,635 worth of carpenters' tools, requesting the order to be carried on open account, pay- able 60 days from date of invoice. EXPORT FINANCING AND CREDITS 505 Manuel Martinez, a wholesaler and retailer in San- tiago, Dominican Republic, has requested an allowance of 35% and indefinite extension of time upon an invoice amounting to $230.95, because of declining prices and hard times. Alves Comocho & Cia, of Rio de Janeiro, indebted for $2,530, have refused to accept the draft and demand 30% reduction in billed prices on basis of brief delay in shipment. In addition to the salesman's reports, which state that each of these firms has a good reputation and should be a good credit risk, the credit manager has secured the following reports from a foreign credit association giv- ing a brief description of each firm and the experiences of other association members in dealing with it : Azopardo y Vilaseca, Avenue Florida 69, Santiago, Cuba, are hardware retailers. The firm, which was or- ganized as a limited partnership in 1916, has a capital of $40,000 and a volume of business of $73,000. The Can- adian Bank of Commerce in Havana is given as a finan- cial reference. Francisco Alvardo, the senior partner, is a Spaniard, 65 years old ; Estaban Vilaseca, the junior partner, is a native of Spanish descent, 36 years old. The capital stock is controlled entirely by the partners who state that they carry life insurance of $36,000 in favor of the business. The experiences and opinions of members of the association who have sold this firm are as follows : 1. Sold for three years, open account payable 60 days from date of invoice. Highest recent amount $5288 in October last year. Amount noAV owing $40 which was written off to Profit and Loss. Account rated unsatisfactor3^ This firm cancelled an order in 1918 after it was shipped, im- mediately after the armistice stating prices were going to fall and refused to accept the shipment. Our agents disposed of the shipment at a loss to other parties. 2. On May 1st, last year, we invoiced to this concern approxi- mately $650 and on October 1st approximately $350. The manager of this company was in Cuba in November or December of 1920 or shortly after the storm broke, and agreed with our friends that their a/c could be paid 506 PROBLEMS IN EXPORT SALES MANAGEMENT at their convenience. Our manager was impressed with the honesty of this firm, thus his agreement. This ac- count has been paid in full by installments. On Novem- ber 1, 1921, we made shipment to this company which invoiced approximately $1000 and have continued to do business on this scale ever since. This indicates that we have confidence in this concern. 3. Have not sold for two years. Do not recollect requests for concessions. 4. Our dealings with this concern have been limited to one transaction, in April last year, which involved a matter of $136 which was shipped on open account. Our in- voices on this order were dated in August and gave them the option of deducting 2% for payment in 10 days. They did not, however, avail themselves of this discount and payment was not received until September. 5. Requested extension of 15-30 days. Never requested other concessions. The account is not considered to be very satisfactory. Last fall we sold this house a bill of mer- chandise which was received 0. K. and draft accepted. When the draft became due customer desired a 15 day extension which was granted. When draft became due the second time customer claimed that he had asked for a 30 day extension which we had to allow. Now he claims that it will not be possible for him to pay until after January 30th and we are now waiting to see what the next excuse will be. This is the only transaction that we have had with them. 6. Never requested concessions. The account is considered to be satisfactory but a little slow. 7. Have sold this account for many years. On terms of thirty days net. Highest credit $2650. Bought heavily for many years, at one time they owed $1575. Were usually slow in remitting. 8. Never requested concessions. We have had an account with this firm for several years including 1920. Their account was quite active in a small way only, highest purchase being $70, payments very slow. In view of a number of suits lodged against them we corrected our terms to cash with order. 9. Never requested concessions. Would advise caution. 10. Do not consider the account to be satisfactory. Sold in April last year amounting to $378 on terms of 90 day draft. Paid part, unable to collect the balance and charged off $143 loss. EXPORT FINANCING AND CREDITS 507 11. Requested extension. Do not consider the account to be satisfactory. We would now sell with advance payment and s/d for balance only. Our last shipment to above was made a year ago, amounting to $1370.63. Payments have since been made at intervals on account. Balance now due $99. 12. At the present time are owing $7.78 which is thirty days overdue. 13. Sold concern for $1000. Requested extension of 45 days. Do not consider the action on the part of customer justi- fied. Order was accepted with the understanding that bills would be paid within ten days. Customer did not pay within ten days in spite of his express statements to do so. Delayed payment 45 days beyond maturity. Do not live up to their agreement. 14. In financial difficulties, suggest closing all credits to them. As they will be embargoed within few days, would get immediate action on account of any import to pay legal expenses. Manuel Martinez operates a wholesale and retail busi- ness in Santiago, Dominican Republic. He also has a small branch in La Vega. His capital is given as $125,- 000. and his volume of business is $200,000. He has 17 employees, apparently has a good reputation in his dis- trict, and has given the Royal Bank of Canada in San- tiago as a financial reference. The experience and opin- ions of the members of the association dealing with this account are as follows : 1. Sold above party since October, 1917, payment against draft drawn at 90 days. Credit at times as high as $400. Ship- ment made in June of $309.32, for which he wished us to accept settlement from him on a basis of 50% payable in four years. 2. Never requested concessions. Have not had a similar ex- perience. The account is considered satisfactory. 3. Have not had a similar experience. Do not request con- cessions. The account is considered satisfactory. Last transaction over a year ago, — payments were made fairly promptly. In January inquired for prices for an order of about $500. 4. Our account was settled 0. K. 508 PROBLEMS IN EXPORT SALES MANAGEMENT 5. Similar experience. Requested indefinite extension. Also requested price allowance. Requested 50% allowance on account and four years to pay balance. In our opinion entirely unjustifiable ; we did not grant it since we did not consider his offer an acceptable alternative to holding him to the full amount of the account. Our agent has col- lected more than 50% of the bill. .6. Have not had a similar experience. Never requested conces- sions. We had considerable trouble collecting a shipment made on July 28, last year, amounting to $93.23, which finally was settled by returning a part of the merchandise on August 31, 1921, amounting to $73.50 and cash amount- ing to $8.42 ; the remainder we have been trying to collect without success. Alves Comocho is a hardware wholesaler in Calle Nep- tuno No. 8, Eio de Janeiro, who buys 75% of his require- ments from the United States and 25% from Europe. The house, wliich was established in 1900, has a capital of $150,000. The National City Bank of New York and the Royal Bank of Canada are given as financial ref- erences. Alves Comocho, the president of the company, who is a native about 45 years of age, states that he car- ries a $90,000 life insurance policy in favor of the busi- ness. The experience and opinions of members of the association selling this account are as follows: 1. Bolts: Refused our drafts without any justification whatso- ever. Asked us to take their orders even if it took 40 weeks to complete shipment. We took their order with this understanding and when material was shipped they refused to accept our drafts. We propose to sue these people and place the matter in the hands of our attorney. 2. Vacuum Bottles: $867 merchandise sold in April two years ago on sight draft. This was paid O.K. Sold $1203 in January last year on sight draft. This was also paid satisfactorily. Have not had any other experience. 3. Steam & Gas Supplies: Similar experience. Never requested extension. Do not consider action on part of customer justified. The a/c is not considered satisfactory. We un- derstand concern is very wealthy but reputed to be rather tricky, and would not hesitate to take advantage of a situation like the present. Two years ago we shipped goods to the extent of $2500, most of the material being outside purchase goods. Refused shipment claiming same EXPORT FINANCING AND CREDITS 509 material could be purchased by them at Rio de Janeiro for less than half the amount of our bill. We exchanged considerable correspondence but could not prevail upon them to take over the goods. Finally we were obliged to accept settlement suggested bv them which resulted in a loss of $1350.00. 3. Nails : Similar experience. Find this party were contentious and assumed flimsy technicalities for rejecting merchandise shoiild it be to his advantage to do so. Do not consider action on part of customer justified. The account is not satisfactory as this party is difficult to deal with and unreliable and untrustworthy. Our account has been closed out, nothing pending. 4. Enamelivarc : Have not had a similar experience, but do not consider the account entirely satisfactory^ because of re- fusal to pay interest and other charges in our draft. 5. Luhricating Oils: Do not consider account satisfactory. Have had no business dealings with this man. We understand that he lives on the mistakes of others. 6. Saws : Our experience with above concern has been very costly to us; on a shipment amounting to about $2400 the drawee of our draft, the terms of which were 90 day ac- ceptance, refused to pay same, and we have been trying to sell the consignment to other parties in Buenos Aires. We intend to collect any loss sustained through this trans- action, by suit. Problem 132 The Eliot Company — Abuse of Credit The Eliot Company is engaged in the mamifacture of fancy paper novelties used for purposes of decoration. Its annual sales volume is approximately $15,000,000 of which amount it exports $1,780,000. The headquarters of the export department are at the factory which is located in upper New York State. The firm desires to extend its export trade and is attempting at the present time to introduce its lines to a greater extent in South American markets. It has experienced some little trouble and annoyance, hoAvever, from the abuse of its credit privilege by some of its South American cus- tomers. 510 PROBLEMS IN EXPORT SALES MANAGEMENT In distributing its product in South America the sales- men of the Eliot Company call on the trade once every four or six months. Therefore, they are unable to handle adjustments or to check up shipments. Their product is new in this market and frequently it is necessary for the salesmen to explain and even demonstrate the meth- ods of using- these colored paper novelties. Whether or not a salesman secures an order, he supplies each dealer with a copy of the latest catalog with suggestions for using this merchandise. Every six months the salesmen return to the home office, in this way keeping the factory in touch with the demand and tendency of the South American trade. The orders for paper novelties are small as compared with most export shipments, ordinarily amounting to only $200 to $500. Prices are quoted in United States dollars, f. o. b. factory, and where the reputation of the buyer is satisfactory a 60-day sight draft is attached to the documents. If the customer's credit condition is perhaps slightly questionable a sight draft is used, while customers whose ratings are uncertain are required to pay cash in advance. If a customer opens a letter of credit in New York so that the Eliot Company can get its money as soon as the goods are shipped, a 2% discount is allowed. South American customers are aware of the fact that it takes from three weeks to a month for their letters to reach the Eliot factory. A number of them have been taking advantage of this fact by claiming small damages to the goods in transit in order to return the draft and have it changed by a small amount. This means that the draft is sent to South America mth the papers but is not accepted by the customer. It is therefore returned to the company for adjustment. If the adjustment is granted, the draft is sent back to South America and then, after another 60 days, payment is made. By this procedure the customer is able to extend the credit terms almost double the time originally extended. For example, a customer in Valparaiso, Chile, ordered $337 worth of EXPORT FINANCING AND CREDITS 511 goods. When the papers arrived he refused to accept the draft chiiming damages of $7.35. Consequently, the bank returned the draft to the EHot Company asking that it be changed accordingly. He accepted the draft when it was sent to him the second time after two months had elapsed, thus extending his credit terms from 60 days to almost 120 days. The Eliot Company believes that the Latin-American love for decoration and display gives promise of devel- oping a permanent market for its goods in the country in the future. Colored paper novelties have not been introduced to any great extent and the company has in- structed its salesmen to be lenient with customers and humor their whims in order to gain their good-will and secure their business. It has not been found advisable to establish a central distributing warehouse to handle all South American shipments, from which claims could be checked for damaged goods or alleged shortages. The company has made an investigation of its packing methods, however, and is confident that the fault does not lie with the shipping department. The company's annual trade in South America at pres- ent is approximately $400,000. A substantial number of its customers, whose combined trade is worth approxi- mately one-fourth of this amount, have been deferring payments by claiming minor damages and returning drafts for extension. Consequently, the company has been forced to borrow almost twice as much money as had previously been planned to finance this part of its South American business. Besides the interest charges the additional office work increases the expense of han- dling this business. These tactics of Latin-American cus- tomers appear to be spreading and if the company is too lenient it is quite possible that an even larger num- ber will use this means of lengthening the time required for payment. On the other hand, many South American customers look askance at dealing with a United States manufacturer. They suspect that the salesmen greatly exaggerate the quality of the goods and the service to be expected. 512 PROBLEMS IN EXPORT SALES MANAGEMENT If the drafts are not clianged to meet the requests of the customers, the salesmen's work will undoubtedly be harder and the selling costs increased. Even at the pres- ent time the company is securing a profit on less than half its South American business. With foreign compe- tition and the rate of exchange against exporting Ameri- can goods, there is some question as to whether the Eliot Company can introduce its product unless it secures the whole-hearted cooperation of the dealers. What action should the Eliot Company take on the large number of small damage claims of its South Ameri- can customers'? Problem 133 The Eliot Company — Credit Procedure The Eliot Company believes that a part of its loss due to the abuse of credits (see Problem 132) is owing to the fact that it has not watched very carefully the credit standing of customers after application has been passed upon in connection with the first order. In studying the problem of how to keep their credit out- standings checked up so as to avoid losses because of frequent business changes, the company is seriously con- sidering a modification of the plan used by a concern exporting electrical apparatus. The organization under four main divisions or departments and their operation are described by the credit manager as follows : • Administrative — Under the Export Manager. Sales — Under the Export Sales Manager. Stores and Service — Under the Stores Manager. Credit and Financial — Under the Credit Manager. Under this plan of organization, it was aimed to bring under the head of each Manager certain functions which logically would fall to him. Naturally, the Sales, Stores and Credit Managers would report for discipline and instructions to the Export Manager. EXPORT FINANCING AND CREDITS 513 Sales Manager would administer matters having to do either directly or indirectly with sales, promotion, adver- tising, the control of travelers, solicitation of business, fixing of prices, etc. Stores Manager's division embraces all the company's activities relating to service, transportation, insurance, office service, accounting and matters of general office routine. To the Credit Manager is delegated the supervision of all matters affecting the Company's credit relations with its customers and relations with banks and financial in- stitutions. By the very nature of our organization, each department is closely in contact with the other. There are frequent consultations between the four managerial heads. 2. Process of Handling Applications. The Credit Department is notified promptly by the Sales Department of inquiries received from new cus- tomers so that a credit investigation may immediately be begun. The same procedure is followed upon receipt of orders accompanied by cash or upon advice from travelers of prospective business. As complete credit information as possible is submitted by traveling repre- sentatives and orders are largely entered immediately upon receipt of credit reports from the salesmen but efforts are immediately made to substantiate all credit reports received from such representatives. Where orders are received directly and not through the agency of representatives or travelers, data is se- cured from either Dun or Bradstreet and any one or sev- eral of the larger banks engaged in financing export ship- ments, which maintain numerous correspondents or their own branches in other countries. A request for a clear- ance of the prospect is made on the Foreign Credit Interchange Bureau; the Pliiladelphia Commercial Mu- seum and the National Credit Office are also frequently consulted for data. If information is not obtainable from any of these sources, our banking friends will, upon re- 514 PROBLEMS IN EXPORT SALES MANAGEMENT quest, cable or write directly to our correspondent for the required reports. Where request is received for longer terms than the credit standing of the customer, condition of his coun- try or other circumstances would seem to warrant, counter terms are usually offered, that is, such as the suggestion that the prospect arrange for banker's accep- tance, acceptance credit, etc. or remit a portion in cash. If possible, an effort is made to secure the business on terms that are acceptable to us. 3. Method of Checking Up on Outstanding Credits. At the first of each month, there are made up by the Accounting Department, statements in duplicate of all open accounts appearing on our ledgers, whether the amounts so carried are debits or credits. But the origi- nal and duplicate statements are forwarded to the Credit Department. Where sales have been made on open ac- count, the original statements are immediately mailed to customer and this is also done at times where sales have been made on special terms, such as sight or time drafts. Where sales are made on special terms, these state- ments are carefully checked with all outstanding drafts to insure that all items appearing on our ledgers have been properly covered by drafts. Forwarding banks in this country are instructed in each instance to notify us when drafts have been accepted, when they wdll mature and when they are paid. If, within a reasonable time after the expiration date proceeds have not been received, forwarding bank is requested either to write or cable for advice. Where drafts drawn to cover individual shipments are in excess of $500.00, the forwarding bank is in- structed to cable notice of non-acceptance and non-pay- ment. Usually where the amount is less than $500.00 instructions are given to notify by mail. All drafts are drawn in duplicate, the original for- w^arded to the banl?: — the duplicate, together with copy EXPORT FINANCING AND CREDITS 515 of letter of advice to the customer and other pertinent documents are held in the correspondence tiles of the Credit Department for follow-up purposes. Record of all drafts drawn is carried on a draft record card — one card for each individual customer. On this card space is provided for date and number of draft, amount, name of bank through which it was drawn, tenor, wdth space for proceeds received, total amount charges paid, date of maturity, acceptance of draft and payment. All correspondence relating to individual drafts is at- tached to the papers affecting this particular item. A copy of the customer's statement of accounts is filed in the folder containing duplicate drafts with relative cor- respondence. Advice of payment from liank with proceeds, when re- ceived, is first forwarded to the Credit Department. Notation is made of such payment and definite advice given to the Accounting Department and the Cashier's Department as to disposition of the proceeds and any charges which may have been deducted. Is the plan applicable to the Eliot Company? Problem 134 Bradford Bolt Company — Handllng Depreciated Exchange Cases On October 28, 1921 the Bradford Bolt Company re- ceived a request from Joaquin Vazquez, a hardware wholesaler in Buenos Aires, for a 60-day extension in which to pay his bill of $1,130. The Bradford Company has sold hardware to this merchant for the past four years on terms of 60-day sight drafts, documents against acceptance. Since all bills had been paid promptly when due and this merchant was considered a good customer, his request for a 60-day extension was granted ; but when the time arrived for settlement, payment was not forth- coming. In answer to a letter of the Bradford Company, Vazquez stated that because the rates of exchange had fallen after he had received his goods, he was unable 516 PROBLEMS IN EXPORT SALES MANAGEMENT to make payment ; he requested the Bradford Company to reduce its prices 40% in order to permit him to dispose of his goods and meet his obligations. This request was refused, whereupon Vazquez replied that because of poor business conditions he was compelled to extend credit accommodations to his customers and that he could not pay the bill at that time. When pressed for a defi- nite statement as to when he would settle his account, he refused to make any promise, but assured the com- pany that he would pay as soon as possible. The company reported its experience to the head of a credit interchange association of which it was a member, requesting a report of the experiences of other members of the association. From this report the company learned the following facts: Joaquin Vazquez has been in the wholesale hardware business since October 30, 1906. His capital stock was reported as $230,000. The following statements of the experiences of other members of the association were made : 1. Similar experience. Never requested an extension. Con- sider action on part of customer justified. Our outstand- ing account has been about $5000 but has been gradually cut down to small payments. We are satisfied with the progress that has been made in meeting the total out- standing. Consider the account satisfactory. 2. Never requested an extension. Our last draft for $215.00 was promptly discounted on April 5, of last year. 3. Took five months' extension. Have not requested other concessions. Invoice of Oct. 1920 amount $181.02 paid January 18, 1921. Invoice of Dec. 1920 amount $177.47 paid May 28, 1921. 4. Never requested an extension. Consider the account satis- factory. Pay invoices at maturity (60 days). 5. Never requested concessions. The account is considered to be satisfactory. 6. "Our experience has been most satisfactory. Never re- quested extension." EXPORT FINANCING AND CREDITS 517 7. Bill of $1200, dated March 4, paid in August. Terms one third cash and 2 notes of $400 each. One note paid, other due this month. 8. Somewhat similar experience. Requested indefinite exten sion. Also cancellation. When the market broke, they requested that we withhold further shipments. This we cheerfully acceded to because conditions justified their request. Consider action justified. Invoice of Aug. 10, 1920, for $1107 at 60 days, payment received August 31, 1920. Invoice of Oct. 7, 1920, for $450.00. They wrote on account of conditions there, they could not pay until conditions permitted. Early in Jan. 1921 a payment of * $200 was received and in the latter part of 1921, the balance was paid. Consider the account satisfactory. We would not hesitate to ship them their requirements today and believe that only conditions beyond their control are preventing them from making good. 9. Sold in 1919 and 1920. Highest credit $392.02. Paid as agreed, 60 days sight. 10. Our representative called on above firm during Sept. and found the}' were getting a fairly good volume although greatly curtailed from normal. They have reduced their overhead to meet conditions and are reducing their mdse. The account is satisfactory. The Bradford Compaiw has had similar experience in Brazil, where, because the rate of exchange had fallen, dealers failed to make payments when their obligations came due. In one instance four Brazilian dealers were induced to make collateral deposits in their local banks covering the amount of their drafts at the going rate of exchange. Since funds held by the bank as the property of the drawee could be attached by creditors in case of bankruptcy, the company gave each dealer a receipt for the amount deposited as part payment of the draft, the balance and tinal adjustment to be made on a future date according to the rate of exchange at that time.' In other instances the company accepted payment in milreis at the rate of exchange prevalent when the goods were ordered. This amount was deposited in the local bank at interest, with the intention of leaving it there until the rate of exchange returned to or at least approached par. 518 PROBLEMS IN EXPORT SALES MANAGEMENT Both these plans, however, tied up the company's capital and in the latter instance the firm ran the additional risk of loss from further fall in exchange. It was suggested that the company's salesmen call upon Joaquin Vazquez and demand payment and if this failed the company should resort to the courts for im- mediate settlement. The company had been the victim of so many similar experiences that it seemed necessary to make an example of at least one case in order to show other dealers of the same ilk that the company could not be trifled with. This plan had the disadvantage of an- tagonizing Vazquez and of running the risk of losing the friendship of other customers as well. Furthermore, previous experiences of the company in litigation in for- eign courts had shown that it was difficult for an Ameri- can firm to secure an unbiased decision and that the de- fendant was often able to take advantage of the techni- calities of the local law to the detriment of the plain- tiff. As an alternative plan it was suggested that the com- pany should resort to arbitration in order to secure a definite settlement with Vazquez which would be satis- factory to both parties and would preserve their friend- ship and mutual good-will. It was proposed that the company should secure the services of the secretary of the local Chamber of Commerce to arbitrate the case and decide what should be done. In case the secretary's de- cision should prove unsatisfactory to Vazquez, it was pro- posed that both parties should agree upon a man of recog- nized business judgment and integrity to act as arbi- trator. It was possible, however, that Vazquez would not relish having his private business affairs submitted to a third person. This plan also had the danger that the arbitrator would attempt to compromise rather than to secure a just decision. Once a definite position had been taken by this arbitrator, it would be difficult for the company to overrule his decision and secure its rights if a biased and unfair decision were reached. Another exporter to Argentina has proposed the fol- lowing solution — first, draft in dollars, which importer EXPORT FINANCING AND CREDITS 519 is to have option of taking up at maturity wdth his note secured by collateral deposit with collecting bank; second, draft in pesos, conversion of dollar invoice at rate slightly below average for preceding month, ex- porter to convert pesos back into dollars when the op- portunity to do so without loss presents itself. A defi- nite policy should be adopted of drawing drafts upon im- porters in their own currencies. Protection may be had to some extent by hedging. It is not certain, however, that at all times the exporter would find it possible to dispose of futures in Argentine pesos. In order to avoid losses, such as might have occurred in the sununer of 1920, a fund should be accumulated for meeting such con- tingencies as they arise. What action should the Bradford Company have taken in settling its account with Joaquin Vazquez? Problem 135 Bryzlak & Company — Act of Protest* On July 10, 1920, Bryzlak & Company, a small New York export house, shipped to Jamaica and billed to the account of its agent, Mr. Garcia, 35 cases and 2 barrels of cotton seed oil on terms of thirty days sight, documents against acceptance. At the same time, it shipped 10 cases of cotton seed oil and 2 cases of shortening to T. •Exporters are by no means in agreement as to the proper procedure with regard to protesting drafts which are not accepted or not paid at maturity. Many exporters believe that a draft should never be protested for non- acceptance. Legal action is so expensive and uncertain that protest may antagonize the customer and make peaceful settlement difficult. In the case of non-payment of a draft, it is believed that banks should be instructed in advance to protest the draft except where the exporter has reason to believe that tlie customer will make suitable arrangements. Ordinarily the exporter cannot afford to forego the legal hold upon his customer which the protest gives him. In some countries protest must be made, if at all, within 24 hours of maturity. Nevertheless, in spite of the greater legal hold, the costs of protest and the remote possibility of successful litigation cause many exporters to waive protest even upon non-payment of draft at maturity. Information as to protest laws may be secured from the Commercial Laws Division of the Bureau of Foreign & Domestic Commerce. 520 PROBLEMS IN EXPORT SALES MANAGEMENT Ho Sange of Falmouth, Jamaica. The drafts for these shipments were accepted; the goods were claimed on arrival; but the obligations were not paid when due. On October 15 the company wrote its agent requesting him to collect immediately the overdue account of T. Ho Sange and to secure payment of a bill of $24.59 from Mr. Bolton, a customer in Kingston ; the firm also called the agent's attention to the fact that his own draft for the shipment of 35 cases and 2 barrels of cotton seed oil had not been paid. Receiving no reply, the company wrote Mr. Garcia on December 1, 1920, and again on Feb. 1, 1921. Being convinced that their agent intended to ignore all communications, Bryzlak & Company on April 29, 1921, wrote to a large firm of commission agents in Kingston asking for the name of a reliable solicitor in whose hands the task of collection might be placed. Upon being referred to Mr. Wendall in Kingston the company entered into the following correspondence : — BRYZLAK & COMPANY Beaver Street New York June 9, 1921, Mr. Charles Wendall, Barry Street, Kingston, Jamaica. Dear Sir : — Messrs. Hanton & Grace, Ltd. of your city, advising us to get in touch with you relative to the collection of some out- standing accounts of long duration, we are taking the liberty of addressing you with this point of view. One account to the amount of $844.89 is against Jose Garcia, for 35 cases and 2 barrels of COTTON SEED OIL, shipped on July 10, 1920, on terms of 30 daj^s, sight. After accepting the draft, the goods were clahned on arrival, but the money never paid, in spite of several times receiving promises from Mr. Garcia to meet his obligations. Although having written him several times lately, we were unable to be favored with even a reply. The other, of $219.50, is against T. IIo Sange of Falmouth, for 10 cases of COTTON SEED OIL and 2 cases of SHORT- EXPORT FINANCING AND CREDITS 521 ENING, likewise shipped in July 10. Tliis concern we are given to understand is in the hands of a receiver ; consequently we presume nothing could be done, except through the Adminis- trator General. However, our Bank here holds a receipt from Garcia for the collection of £30 from T. IIo Sange, for which we naturally hold Garcia responsible and likcAvise wish to collect. On a draft against H. O. Bolton of Kingston, to the amount of $187.44, Mr. Garcia remitted $162.85, thusly being short All in all, Mr. Garcia is indebted to us to the extent of $869.48 in American currency, and £30 in English currency. Against this we owe Mr. Garcia commissions amounting to $138.67, which we however do not wish to consider, or remit for, until we have received full payment from him, w^ith interest. Will you kindly let us know by return mail in which man- ner you wish to proceed in collecting this money, also how much the expense would be to us for your services. Trusting to be favored with a replv bv return mail Ave he^ to remain, ' ° Yours faithfully, (Signed) Bryzlak & Company. BRYZLAK & COMPANY Beaver Street New York June 9, 1921. TO THE ADMINISTRATOR GENERAL of the T. HO SAXGE & CO. ESTATE of FAL:\[01'TH, JAMAICA. Dear Sir: — We herewith authorize Mr. Charles Wendall of Kingston to collect for our account whatever dividend will be paid on the original amount of $219.50, less £30, in English monev, col- lected by Joso Garcia, of Kingston. Yours faithfully, (Signed) Bryzlak & Company. 522 PROBLEMS IN EXPORT SALES MANAGEMENT Charles Wendall Barry Street, Solicitor KINGSTON, JAMAICA. 22nd June 1921. Bryzlak & Company, Beaver Street, New York, New York, U. S. A. ■ Gentlemen : — We have your letter of Dth instant asking ns to take up the following : Jose Garcia $844.89 T. Ho Sange 219.50 H. 0. Bolton 24.59 and we understand that on the first claim Garcia is liable to you as Acceptor of a Bill; on the second claim he is liable to you for £30 collected and the Estate of Ho Sange for the balance; and the third claim he is probably liable to you for $24.59, or H. 0. Bolton is liable to you thereon. As against these Mr. Garcia will be entitled to set off his com- missions of $138.67. In reply to your letter we beg to say that we shall be willing to undertake collection of these claims on a 107o basis, but if suit be instituted you will be responsible for the costs of suit. Of course in the case of success 5''ou will re- cover same from the Defendants. Costs of uncontested suit will not be heavy, but any claim over $200 which is contested might involve appreciable ex- pense. We gather that you do not desire us to proceed with the matter until we hear further from you. It would be advisable for you to send us the accepted Drafts on which you are claim- ing, and in the case where there is no draft then the Contracts. Yours faithfully, (Signed) Charles Wendall. At this point in the negotiations, Bryzlak & Company w^ere advised by their bankers to make one more at- tempt to collect the overdue accounts by corresponding directly with Mr. Garcia. This course was taken on July 7 but as no reply was received by September 9 the firm wrote to its solicitor as follows : — EXPORT FINANCING AND CREDITS 623 September 9, 1921. Charles Wendall, Kingston, Jamaica. Dear Sir : Our last appeal to Mr. Garcia for payment being in vain, in fact, not even receiving the courtesy of a reply, we would now ask you to kindly proceed against him under the arrangement previously made with your good selves. We believe we have furnished you with sufficient details to approach Mr. Garcia, for the purpose of ascertaining just what he will and can do. Should you be forced to proceed through the courts, kindly advise just what papers you require from us here to substan- tiate this action and same will be immediately submitted. Please bear in mind that, relative to T. Ho Sange, our inten- tions are to proceed criminallj^ against Garcia for misappropria- tion of funds, if payment is not made forthwith, without any excuse whatever. Trusting to hear from you by return mail and hoping you will take the necessary steps to secure payment in one manner or another, we beg to remain. Yours faithfully, (Signed) Bryzlak & Company. Charles Wendall Barry Street, Solicitor KINGSTON, JAMAICA. 25th September 1921. Bryzlak & Company, Beaver Street, New York, N. Y. IT. S. A. Gentlemen : We have your letter of 9th iust. and we are taking up the mat- ters referred to. Please however send us the drafts, and all cor- respondence. Yours faithfully, (Signed) Charles Wendall. 524 PROBLEMS IN EXPORT SALES MANAGEMENT The solicitor immediately got in touch with the Royal Bank of Canada in Kingston which had handled the drafts in the transaction. An "Act of Protest" was drawn up stating that as the drafts liad been dishonored and no adjustment had been made, collection had been placed in legal hands ; this statement was sworn to and signed by a bank officer before a Notary Public ; and the papers were forwarded to Mr. Garcia.* The next day Mr. Wendall sent the following letter to Bryzlak & Company. 30th September 1921. Bryzlak & Company, Beaver Street, New York, N. Y. U. S. A. Gentlemen : We have to report that Mr. Garcia 's solicitor called on us to-day, and we gather that Mr. Garcia acknowledges liability except where otherwise stated herein, and he is endeavoring to make immediate arrangements to raise a loan to satisfy the amount. As to H. 0. Bolton he states that Mr. Bolton refused delivery and that he sold the goods for what they could fetch, and remit- ted to you $163.68 to close. We have impressed upon Mr. Garcia 's Solicitor that the amount collected from Ho Sange should be immediately paid over to us, and we expect to get this in a very short time. Yours faithfull}^, (Signed) Charles Wendall. As nothing further had happened by November 18th Mr. Wendall advised that unless Mr. Garcia took some action before the 26, suit should be immediately in- stituted. On December 9, Bryzlak & Company received the following letter from their solicitor: *The purpose of the "Act of Protest" is to make known to the defaulter the fact that the creditor has put the matter in lejjal hands and will force payment if necessary. Protest is a preliminary step, and because of its affect upon the credit standing' of the individual it is frequently effective in securing settlement. EXPORT FINANCING AND CREDITS 525 5 December, 1921. Bryzlak & Company, Beaver Street, New York, N. Y. U. S. A. Gentlemen : — We have pleasure in reporting that we have collected from Mr. Garcia the sum of £105, on account, being £30 the amount collected from Ho Sange and £75 on account of his draft. He is endeavoring to raise a Loan on his properties, and hopes soon to be in a position to remit the balance. We enclose Sight Draft on the Royal Bank of Canada No. 4269 for $424.98 of even date in our favor by us endorsed by you. Yours faithfully, (Signed) Charles Wendall. Additional payments, however, were not forthcoming and on February 2 Bryzlak & (Amipany wrote ^Ir. Wendall as follows: BRYZLAK & COMPANY Beaver Street New York February 2, 1922. Mr. Charles Wendall. Kingston, Jamaica. Dear Sir : With no intention whatever to appear bothersome, but real- izing that practically two months have gone by since the part payment of Mr. Garcia was received, likewise most anxious to definitely close this unfortunate transaction, we would now ask you to take the necessary steps for accomi)lishing our purpose. It might interest you to know of having received a nice letter from Mr. Garcia in the early part of January, in which he refers to his indebtedness as follows : — "The matter of my loan is now proceeding and as soon as the documents are through, will settle the outstand- ing. ' ' May we not hear from you by return mail regarding the above, or at least as to what has transpired and liow the matter stands at the present time. Very truly yours, (Signed) Bryzlak & Company. 526 PROBLEMS IN EXPORT SALES MANAGEMENT Charles Wendall Barry Street, Solicitor KINGSTON, JAMAICA. February 16, 1922. Bryzlak & Company, Beaver Street, New York, N. Y. U. S. A. Gentlemen : We have your letter of 2nd instant. We ourselves felt that this matter was being unduly prolonged and wrote Mr. Garcia that he must make efforts to close it up without delay. He professed to be very much surprised that we should press him to complete as he was arranging- a loan, and we replied that the loan should be put through without delay. We are writing him again on the subject. Will you kindly let us know whether we are to issue action against Mr. Garcia if he fails to complete within a reasonable time? Yours faithfully, (Signed) Charles Wendall. Problem 136 Wine Shocks — Statement of Claims In October, 1917, a large New York bank, which was helping to effect transactions in wine shooks between American manufacturers and Argentine wine producers, received a request for an offer for 10,000 wine barrel shooks, 52-54 gallon capacity, for January 1918 shipment. A quotation was obtained from the Huggans, Miller Cooperage Company of Louisville, Kentucky, on these barrel shooks for $3.40 each, f. o. b. steamer New York. The South American buyer desired C. I. F. quotation, but because of war conditions tlie American manufac- turer did not feel justified in making such quotation. As a result, the offer of the Iluggaus, Miller Cooper- age Company was accepted. The acceptance was made EXPORT FINANCING AND CREDITS 627 over the telephone with the New York representative of the Huggans, Miller Company, and the following day the bank received the confirmation reading : "Confirming telephone conversation with you to-day we are entering your order for 10,000 wine barrel shooks, 52-54 gallon capacity, at $3.40 each, f. o. b. steamer New York, for January shipment. We are requesting the mill to set these shooks up big so that there will be 53 gallons standup if at all possible," Shipment was made within the dates of the terms set down in the offer and acceptance. The three bills of lading which were sent forward made note of the fact that four bundles of staves were missing, that is, staves enough for thirteen casks. Further, the bills of lading stated "staves and heads black stained." The Huggans, Miller Company explained to the bank that the black stain noted on the staves was not actually a stain, but was due to the fact that when the staves were shaved a natural stain appeared. This dark appearance of the wood would be covered up when the hoops were placed around the staves. » In August, 1918, the New York bank received the fol- lowing letter from its branch : "The wine shooks for Messrs. Martinez e Hijos, which have been received with considerable delay on account of the trans- shipment in Montevideo, have been finally delivered to the ulti- mate buyer, and we are now in receipt of a claim from our cus- tomers in connection with the capacity of these shooks, which does not agree with the capacity on the basis of which the pur- chase has been made. "Hereunder please find translation of the letter which we re- ceived from Messrs. Martinez e Hijos, and we beg to enclose their debit note for $4,494.15 pesos (paper) which you will please claim from Messrs. Huggans, Miller Company, to com- plete the terras of the transaction : " *We have received a letter from Mr. Virgilio Lopez, buyer of the shooks, which we paid through you for the firm of Huggans, Miller Cooperage Company from the contents of which j^ou will see that there is a difference of more than 21/^ % in the capacity of these shooks, compared with the capacity indicated by us before the purchase of the shooks, and which was the basis of our sale to Mr. Lopez. 528 PROBLEMS IN EXPORT SALES MANAGEMENT " 'On account of this difference, the exactness of which we have checked ourselves, we have had to reim- burse 45c (Argentine paper) on each wine shook. This loss, which we are sustaining on account of the failure of the sellers to comply with the capacity of the shooks ordered, must obviously be for their account, and in view of the fact that your bank was so kind as to serve as intermediary in this transaction, we herewith ask you to kindly do what is necessary in order to obtain refund of the above charges from Messrs. Hug- gans. Miller Company.' "We further have received from Messrs. Martinez e Hijos another debit note for the amount of 534 pesos (paper), value of thirteen wine shooks missing, and for charges paid for clean- ing the shooks oil stained. We refer in this connection to the clause contained in the bill of lading to the effect that 'staves and heads black stained and four bundles short.' " The New York bank sent a copy of this letter to Hug- gans, Miller Cooperage Company, who made an investi- gation of their original records. It was found that a record of the test of this specific shipment which was sent forward showed that out of twenty packages only one showed a capacity of less than 52 gallons and this one showed a capacity of 51/^ gallons, with others propor- tionately larger. Further, their records showed that the dark stain which was noted on the bills of lading was caused by a natural stain which appeared when the staves were shaved, and that this discoloration was covered by the hoops when the casks were made up. What action should have been taken by the Huggaiis, Miller Cooperage Company upon the claim of the South American firm? EXPORT FINANCING AND CREDITS 529 Problem 137 Grisby and Randall — Exportation of Coal The building of the Panama Canal greatly reduced the distance from eastern ports in the United States to the west coast of South America, so that the west coast countries became of increased importance to American exporters. Previous to the war Great Britain controlled the import coal trade of Chile, mainly because England was the largest purchaser of Chilean nitrates and boats going from Liverpool to Chile were willing to carrj^ cargoes of coal. Moreover, competition by American coal exporters was impossible under conditions of Amer- ican ocean tonnage then existing. At the outbreak of the war Chile was forced to turn to the United States for such coal as was formerly imported from Great Britain. For years Chile has been the largest coal producing country in South America, but the product is very soft and is considered to be about 20% inferior to good British or American coal. Whereas the average tonnage for the past ten years produced by Chilean mines has been 1,250,000 tons annually, the coal requirements of Chile were estimated in 1915 at approximately 2,500,000 metric tons per annum. In 1917 the imports of coal from the United States amounted to approximately 290,000 tons, and in 1918 to about 250,000 tons. During 1918, the brokerage firm of Grisby & Randall sold to the Chilean Coal Company several large ship- ments of coal for coal mining companies in the United States. On August 28, 1919, Grisby & Randall received the following cable from a South American firm : — "GET US AN OFFER THREE TO FIVE THOU- SAND TONS WESTMORELAND SCREEN GAS COAL AND STEAM COAL GIF VALPARAISO SEPTEMBER OCTOBER." The Westmoreland coal referred to is that coming from Westmoreland County, West Virginia. 530 PROBLEMS IN EXPORT SALES MANAGEMENT To this cable the following answer was made : "WESTMORELAND NOT AVAILABLE OFFER GOOD SCREEN LUMPED GAS COAL ANALYZ- ING APPROXIMATELY THIRTY FIVE PER- CENT VOLATILE FIFTY EIGHT PERCENT CARBON SIX PERCENT ASH NINE TENTHS PERCENT SULPHUR SIX DOLLARS AND A HALF GROSS TON AT ATLANTIC PORT STEAM COAL VOLATILE THIRTY FIVE PERCENT LOW ASH APPROXIMATELY ONE PERCENT SULPHUR THIRTY FOUR DOLLARS GROSS TON CIF VALPARAISO CONFIRMATION BY SEP- TEMBER TEN ALL PRICES RISING SUPPLY LIMITED OUR COMMISSION TWO PERCENT." The following telegram was received from the Chilean Coal Company: "ACCEPT PROMPT CARGO MAXIMUM SIX THOUSAND TONS VOLATILE STEAM COAL CIF VALPARAISO THIRTY FOUR DOLLARS." The Grisby & Randall Company had received this offer for high volatile steam coal from the Eastern Coal Prod- ucts Company and upon acceptance gave orders that coal be shipped to the Atlantic port, to be sent to Val- paraiso. The coal went forward on the steamer "CUBA." Documents were sent forward with draft attached, for payment upon presentation. The vessel was loaded and sailed from Newport News, Virginia. The coal was classified by the Tide Water Coal Exchange, recognized in the coal trade of this country as authori- tative, which issued the following statement at time of loading : "THIS IS TO CERTIFY THAT TWENTY SEVEN HUNDRED TEN GROSS TONS OF COAL LOADED INTO STEAMSHIP CUBA AT THE PIERS OF THE CHESAPEAKE AND OHIO RAILROAD, NEWPORT NEWS, VIRGINIA, CONSISTED OF HIGH VOLATILE GAS COAL COMING FROM MINES LOCATED IN WEST VIRGINIA, UNITED STATES." On November 17 the Grisby & Randall Company re- ceived the following cable: EXPORT FINANCING AND CREDITS 531 "CUBA ARRIVED CARGO EXTREMELY BAD RECEIVERS REFUSE TO ACCEPT COAL CAN- CEL BxVLANCE CONTRACT" Some days later a letter came direct from the Chilean Coal Company from which the following extracts were taken : ''The steamer .'CUBA' has now arrived. The quality of the coal, however, is beyond description and the receivers absolutely refuse to pay for the cargo as the same is entirely useless to them. We have bought, and also sold "steam coal" and w^e are sorry that we have not received what we have bought. In fact, the whole cargo consists of only duff and the receivers who have tried to burn this duff could not hold the steam. It is to be deplored that there has been paid the exorbitant rate of freight now ruling for such inferior stuff. It is also a matter of regret that the Eastern Coal Products Company has treated this first business with us in such a manner, wdiich, of course, renders further business impossible in case they do not indemnify us. "We ask you kindly to take up this matter with the shippers and see that a large discount is allowed us. At the same time we confirm oui" cable instructions to cancel the second cargo, as we would not risk another cargo of this sort. "During the past few months we have received fifteen cargoes of American coals from the Atlantic Coal Company, which have been of an excellent quality. It is therefore quite incomprehen- sible to us that any firm could load such an inferior coal as the above. In fact, Atlantic coals have been described by many of our customers as the best coals they have ever seen and used. "According to a moderate estimate we shall have to allow $3.00 per ton on the whole cargo, and this amount we hereby claim refunded from the shippers. Indirectly we lose much more as it will be very difficult for us now to go to the same peo- ple and ask them to buy American coals." At the time a friend of one of the members of the firm of Grisby & Eandall was in Sontli America, and upon cable advices went to Valparaiso. lie Avas not in the coal business, but Grisby & Randall felt that he might be of some help while on the scene. The following is an ex- tract from a letter sent to him by the manager of the home office regarding this shipment of coal: "In regard to the Chilean Coal Company's claim that the cargo is extremely bad, we believe their statement is not well- 532 PROBLEMS IN EXPORT SALES MANAGEMENT founded. The coal shipped in the 'CUBA' consisted of coal classified by the Tide Water Coal Exchange as Pool No. 5, which is a high volatile gas coal that can be used equally well for steam or bj^-produet purposes. This grade is widely sought for and given preference to by consumers in this country. I, personally, know it to be of excellent quality and know that it was classified by the Tide Water Coal Exchange as Pool No. 5, a grade established by the Exchange, and the Eastern Coal Products Company therefore had no interest or power to deter- mine this high quality. "The Chilean Company purchased high volatile steam coal, which is classified as Pool No. 5. The Tide Water Coal Ex- change's classifications are : — Pool No. 5 — run of mine gas coal. Pool No. 6 — high volatile steam. Pool No. 7— high volatile by-products. "All Pool No. 5 can be used as Pool No. 6, but Pool No. 6 cannot be used as Pool No. 5. All mines listed as Pool No. 5 are permitted to ship to Pool No. 7, and vice versa ; but mines listed as Pool No. 6 cannot ship to Pools Nos. 5 or 7. "If you look at the foregoing extract from the Tide Water Coal Exchange rules you will see, without a doubt, that coal of a better grade than contracted for was actually shipped. "We have received advices that the draft on the Chilean Coal Company has been paid. In the beginning we placed this company's name before the Eastern Coal Products Company with our stamp of approval. To have the Chilean Coal Com- pany make such claims gives the Eastern Coal Products Com- pany cause to feel that our approval does not mean much. "We believe that the Eastern Coal Products Company did an excellent favor for the Chilean Company in loading the grade they shipped, considering which the Chilean Company statements convey the impression of one ever on the alert for an opportunity to take an undue advantage. ' ' The representative of the brokerage firm in Valparaiso sent the following letter : "On receipt of your reply of December 7, I went to Valpa- raiso to investigate this case. I spent the 9th and 10th there, and am now back in Santiago. "Speaking as a layman, I should say that this cargo was really bad, as I had an opportunity to see the coal at the gas works' coal yard, where the gas works' superintendent showed me a pile ol; about 200 tons of the coal from the ' CUBA. ' There were very few big pieces and the coal was mostly fine grain coal, almost EXPORT FINANCING AND CREDITS 533 as fine as dust or mold. To the gas works it was immaterial that the gas coal was so fine grained because they crush the coal anyhow before it is used in the retorts. The superintendent mentioned that these coals were ^inferior to the coals they had rceived from the Atlantic Company. ' ' The coal in the bottom of the ship had looked quite different from the coal on top and there w^ere many rather big pieces in the bottom. If the whole cargo had looked as did the one- third in the bottom, the Chilean Company would not have any reclamations. The thing which made the management here wonder what had been put into the steamer was that the cap- tain said that one-third of the coal was gotten very quickly at the point of loading but they had to wait some time for the rest. The management thought they had gotten a lot of inferior rem- nants in order to get the steamer filled. "This cargo had been sold in advance to a number of indus- tries and to a railroad as the cargo was to be steam coal. The previous American coal cargoes had been excellent. The rail- road had agreed to have all their locomotives use the coal from the 'CUBA' for a few days in order to show the directors of the road the excellency of the American coals and the economy through using them. These tests had to be inhibited when the 'CUBA' arrived with what they call a sample of the Ameri- can Motherland. ' ' The Chilean Coal Company gave me the enclosed list of rec- lamations made on 776 tons, on which they calculate that they will lose profits amounting to about $3,250. I must say that they have made a profit out of the cargo just the same, although not so big as calculated, and therefore a recompensation is not really needed for economic reasons, but they really had a lot of discomfort on account of all the complaints about the coal." In the light of this correspondence what action should have been taken by the firm of Grisby & Eandall to best serve the interests of their clients? 534 PROBLEMS IN EXPORT SALES MANAGEMENT Addenda 1 (see page 462) : **The following is a typical form of foreign draft which is accepted by writing across the face: (a) the word accepted, (b) the date and (c) the signature of the acceptor. r ,r*\ '', ' ./,/'■- f'',i-i.;f>T ■ / '■ /fZ/.o'/u ,4 'u f W ■'> '/. ■/ •■!!. vy ) . / ^ . / ' -<'- // '/// ■i^ FORM 16. Garfield Talking Machine Company — Foreign Drafts EXPORT FINANCING AND CREDITS 535 Addenda 1, Continued. •S n, a « (^ (X> ® be « c3 80 C M I >, c CO a E o O u ,C 2 N S C 15 u: o o 536 PROBLEMS IN EXPORT SALES MANAGEMENT Addenda 1, Continued: fi fc: o 3 !-< OJ br o o +J 1) o m & o o o ,_ !h & .2 g ■^-^ be 3 a o ° 02 CD ^ &: p..a Z o I- u> O CD IL O )^ z < OQ J < z g I- < z I- z < I U tc \i\ 7. UJ I I- 6 6 rt o « a. -— E S t: E CrJ - ^ ^ ■■5 °„ tT £ -^ 2 « E S E o O I n t o O .S H o O EXPORT FINANCING AND CREDITS 537 Addenda 1, Continued: Upon acceptances, consult Mathewson, Acceptances: Trade and Bankers; and the numerous publications of banks and of the American Acceptance Council. According to Dewey and Shugrue, Banlcing and Credit, pages 374 and 375, foreign bills of exchange may be classified as follows: "1. As to maturity : (a) Demand or siglit bills or bankers' checks — payable immediately on presentation. (b) Short bills — payable within a month from time of acceptance. (c) Long bills — payable after a month from time of acceptance. 2. As to whether drawn payable after sight or after date : (a) Drawn payable so many days after sight, that is, after ac- ceptance. (b) Drawn payable so many days after date (not common in foreign exchange). 3. As to domicile: (a) Sterling drafts, also called 'sterling exchange '—payable in pounds in England. (b) Franc drafts — payable in francs in France. (c) Dollar drafts, also called 'dollar exchange', or 'dollar accep- tances'— payable in dollars in United States. (d) Bills on other countries. 4. As to whether bearing collateral security or not: (a) Documentary bills — having attached bills of lading and other shipping papers. (b) Clean bills — with no documents attached. 5. As to parties to instrument: (a) Bankers ' bills, bankers ' drafts or bankers ' checks — drawn by one bank against another. (b) Commercial bills — drawn by a merchant against another mer- chant or the latter 's bank. 6. As to nature of transaction: (a) Grain bills. (b) Cotton bills. (c) Finance bills — drawn for purpose of borrowing funds in foreign money markets. ' ' 538 PROBLEMS IN EXPORT SALES MANAGEMENT Addenda 2 (see page 495) : 6 a 1 u 0 B 0 1 < "a a 0 a Z .0 e a u 61] C tS G c S 1 3 1 n Oi M c' c s. X i -a 3 p 3 3 'c .3 3 p 1? 61 c E o o ol 8 ce p c o -1 -i ^ =i 6C c ]5 8 c 1' 3 C O p "o c .2 c o c > z u Z > Ik. o c z z 4 S OPEN ACCOl'NT GENERAL A DiscoonLs. N. Account settled by attorney. . B Pays when due. 0. Account settled by arbitralint C. Slow or compromise. P. Account still in dispute DRAFTS WE RATE THE ACCOUNT IH. Anticipates payment. P. High, '1. Accepts and pays promptly. R- Good. J. Accepts promptly-delays payment S. Satisfactory. L. Delays froth acceptance and payment. T. Unsatisfactory M. Makes unjust claims. U. Undesirable, I 1 J B 8 '5 1 1 < u cd u> CQ o < X u H z H >^ Q cd z o o 5ls II I- 1, c S J* III u 4 U b. o (A s oc u t- ^:|^^| III Jlll^ 1 I ^ ^■i-=-£-&i i i It 1 ^sl.l'S'^i maaaaa a uu •i' 1 "E H t tl J, ± .JgelS^ ■g -g 1 g|s i ^"s 1 1 slEolll .9. 1 1 1 \ • ^-1 i 1 c ^1 USX. c £ E o U i 3 1 5 III C^ J •§ CO 1 c CO a o O o EXPORT FINANCING AND CREDITS 539 Addenda S, Continued: Foreign Credit Interchange Bureau NATIONAL ASSOCUTION OF CBEDIT MBN tl PA« BOW NIW tOB«, N. Y. tag. No- Name SlTMt Addn City -Country. SUBSCRIBER'S INQUIRY TICKET Foreign Credit InterokaB^e Bnreaa National Association of Credit Mbn •I PA«i mow Niw you. H t Biutneu- Sfrett -Civ- CouotcjE— Reason for makint inquiry. [Check] Old Acct [ ) New Order [ ) Inquiry ( ] GIVE YOUR EXPERIENCE: ..?,x. Give below reference, or name, of house, which yOu beheve ,o be intere.ted (with eomplet. .dd,«..) SubKriber'i No.. FORM 20. Whitmore Rubber Company— Request of Bureau to Members 540 PROBLEMS IN EXPORT SALES MANAGEMENT Addenda 2, Continued: EXPORT FINANCING AND CREDITS Addenda 2, Continued: FOREIGN CREDIT INTERCHANGE BUREAU National Association of Credit Men Ne» York. N. Y. Aldiou^ oblkiawi I 1. Report oi '2 Address_ 3. Classes of goods 4 Languajjes uf correspondence 5, Character of business: WhoIesaler_ Manufacturer Importer, 6. Buys chiefly; Domestic. 7. Organization.^ , Exporte Commission Merchant _ _Agent .Forwarde _ Foreign _ 8- Branch houses_ Financial reference. 10. Capital U Date of report. -Volume of business. _No. of employe 12. Managers or partners {name, title, age, nationality). 13. Capital stock controlled by (name, address, nationalil 13. Relative size of concern Very large. 16. General reputation of concern DlUFFLEMESffAEY BE)P©MT 541 FORM 22. Whitmore Rubber Company — Supplementary Report 642 PROBLEMS IN EXPORT SALES MANAGEMENT Addenda 3 (see page 500) : *See Dewey and Shugrue, Banking and Credit, Cliap. V; National City Bank, Cammcrcial Letters of Credit, by John E. Gardin; proceedings of National Foreign Trade Council for 1920, p. 360 — "A Standard Ameri- can Letter of Credit by Marc M. Michael; and Export Trade and Exporters' Review for Dec. 31, 1921 — "Latin American Laws on Letters of Credit." Because of the frequent misunderstiindings and disputes which occurred particularly during the period of falling prices in 1920 and 1921, there has developed a demand for standardization of export documents, espe- cially those involving financial obligations. A committee of bankers, work- ing with the American Acce^jtance Council, has endeavored to standardize forms for letters of credit. They recommend the discontinuance of the so-called "authority to purchase," which had very few of the elements of a letter of credit, and recommend an unconfirmed credit which they call "authority to pay:" Advice No. A 19 ("ty) Dear Sirs : We advise you that Bank have authorized us to (correspondent bank) honor your drafts for account of for a sum or sums not exceeding a total of (figures) (words) on us at to be accompanied by evidencing shipment of insurance to be effected by All drafts so drawn must be marked : ' ' Drawn as per Bank 's (advising bank) Advice No. A , dated 19 " Drafts so drawn, with documents as specified must be' presented at our office not later than 19 The authority given to us is subject to revocation or modification at any time without notice to you. Each of the provisions on the back hereof, except so far as otherwise exj^ressly stated, is incorporated as part of this advice. This advice conveys no engagement on our part or on the part of Bank and is simply for your guidance in preparing (correspondent bank) and presenting drafts and documents. Yours very truly, EXPORT FINANCING AND CREDITS 543 Addenda 3, Continued : Irrevocable credits gUcaranteed only by the issuing bank — that is, in the case of exporters, the foreign bank or foreign correspondent of the Ameri- can bank — taice the following form: Credit No. B. (city) .19. Dear Sirs : We hereby ojjcu our irrevocable credit in your favor for account of for a sum or sums not exceeding a total of (figures) (words) available by your drafts on _ at to be accompanied by evidencing shipment of: insurance to be effected by All drafts so drawn must be marked : ' ' Drawn under Bank (issuing bank) Credit No. B :, dated 19 " (To be used when not all the documents are to accompany draft) There must be forwarded by early mail to Bank at the following documents All remaining documents must accompany the draft. The amount of any draft drawn under this credit must, concurrently with negotiation, be endorsed on the reverse hereof, and the presentment of any such draft shall be a warranty by the negotiating bank that such endorsement has been made and that documents have been forwarded as herein required. This credit must accompany any draft which exhausts the credit and must be surrendered concurrently with the payment of such draft. Each of the provisions on the back hereof, except so far as otherwise expressly stated, is incorporated as part of this credit. We hereby agree with the drawers, endorsers and bona fide holders of drafts drawn under and in compliance with the terms of this credit that the same shall be duly honored on due presentation, and delivery of docu- ments as specified at _ if negotiated on or before 19 Yours very truly. 544 PROBLEMS IN EXPORT SALES MANAGEMENT Addenda 3, Continued: Where the irrevocable credit is coufirmed also by the paying bank, the following form is used : Credit No. Da 19 .. .. ("ty) Dear Sirs: "VVe are instructed by Bank to advise you that they have opened their irrevocable credit in your favor for account of for a sum or sums not exceeding a total of (figures) (words) available by your drafts on us at to be accompanied by evidencing shipment of.... insurance to be effected by All drafts drawn under the credit must be marked: ' ' Drawn under Bank 's (advising bank) Credit No. D-a , dated 19 " Each of the provisions on the back hereof, except so far as otherwise expressly stated, is incorporated as part of this credit. Bank engaged with you that all drafts drawn (correspondent bank) under and in compliance with the terms of this credit will be duly honored on delivery of documents as specified, if presented at this office on or before 19 ; we confirm the credit and thereby undertake that all drafts drawn and presented as above specified will be duly honored by us. Yours very truly, Tlie reverse of all these forms is as follows: "Provisions for Interpretation of Credits. A. (1) Eailroad export and forwarders' bills of lading will not be accepted. (2) Ocean Ijills of lading permitting transliipmeut will be accepted. B. (1) Bills of lading sliall contain no words cjualifying the acceptance of shipments in apparent good order and condition. (2) 'Received for shipment' or 'alongside' bills of lading Avill be accepted and the date thereof taken to be the date of shipment, and in this case insurance shall cover the shipment from such date of shipment and on wlmtever vessels carried. EXPORT FINANCING AND CREDITS 54S Addenda 3, Continued: will be token as the date wL'f stl'f^ *'' ""!'' '' '''^'''^ ^^'^ evidenced by 'on board 'end nrl ^ shipment was effected; if be so taken endorsement, the endorsement date will '■ ^'mZZ ':r^::Z.t''' '^ ^^-^^^-^^ - -^^^^^-^ underwriters- cer- "• "-^^S.rt:rt;;r^;:^ts£^d^:2^^VVP -^^ there '"'^c^JV'^S!? :i'l:^i:[!i:J-^:^^^f!>^^ or negotiation falls next succeeding business day ^' "-^Pi^^^t^O" is extended to the Presentation must be n.ade during the usual banking hours. '':h^:::;c'^^^^^:;rs.;i;^tsnT^^^p^^^^^^ ing shipment to be effeSwiS .,•'.''". ^' interpreted as requir- presentition or negotiation i!!.. ]'*^,^''^'' ^"^ '^ "« *i'^te for tion nuzst be nual^^" mT t lir f d1;s"ff "^'r^'^''^- - -egotia- or advice. -^ '^''^^ ^^o"^ the date of the Credit I. Documents representing more thnn tI,P . ■« ^ - may be accepted in fhe discre h'on of H?p"^ ^"''''*'*>' °^ P^oP^'-tJ without thereby binding he buver to ^ ^F'"^ "' negotiating bank ^^Pa^ment shall ^e !i^.i?enr^^-;^r ^ -^-^-^^^ro? '• "^cSuiS^rpS^rVlS,;^ -^^« «S^^-^^- ^-P-t, shall from the named'sum or quanSy ^^^^^^^"^g ten per centum K. Drafts drawn without recourse will not be honored. and Importers A^Satfon ' a^Sr of crm'n^^ ^""T'-^f ^-^1'°^*-^ New York, New York Prodm^o ^v » Commerce of the State of elation of New York.t . % ''"""^^ ''"^ the Merchants' Asso- York, on December 16, 1919. ''""''' '^''^ "^ ^"^"^ Ho"«e, N^w F. G. H. CHAPTER XI DELIVERY OF EXPORT ORDERS MUCH of the mystery of foreign trade has been connected with the delivery of goods, because so many complex documents constituting the ' ' paper work" must be executed in connection with shipment of export orders in order to carry out the various plans and policies relating to financing and the physical de- livery of goods as the result of selling transactions in foreign lands. As a consequence, a great deal of the earlier study of foreign trade has related primarily to the so-called ''technique," in this case meaning par- ticularly the routine in connection with the delivery of an order. That the proper filling of orders is necessary to continued foreign trade is a statement that arouses no argument, for no. concern can fill orders improperly without added expense caused by delay and without arousing the ill-will of its customers. For that matter, one can do so no more in the domestic market. But to look upon the ''paper work" as the substance of foreign trade and foreign experience is an entirely different view- point. That greater care is necessary in filling foreign than domestic orders, because of the difficulty of adjust- ments, distance, and other factors, is also freely admitted ; but, once an exporter has carefully studied his problem and decided upon a practice, the filling of export orders should become a routine just as the filling of domestic orders has become a routine requiring comparatively lit- tle attention on the part of department executives. Nevertheless, at the outset the export manager must de- termine currently policies with reference to the various phases of shipment and must so arrange his organization 54^6 DELIVERY OF EXPORT ORDERS 547 that the physical delivery of goods will add to rather than detract from the good-will which he is trying to build up as a basis for continued foreign trade. The exporting manufacturer, who receives an order from a foreign customer either by mail or through his salesmen, must, arrange for the proper performance of the following operations; (1) decide upon acceptance of the order on the basis of credits, his ability to fill the order, and other considerations; (2) acknowledge the order— the acknowledgment of orders in foreign trade is the general custom and for many exporters offers an opportunity to inject a personal touch and a state- ment of appreciation of the order; (3) prepare the goods for shipment— this includes recognition of all the desires of the customer with regard to packing and containers and a knowledge of how to pack the goods so that they will arrive in good condition and pass the customs most economically; (4) secure insurance, whether of the types desired by the customer or of the types intended by the quotation; (5) shipping of goods— in the case of inland shipments, they will be turned over to the railroad company and bill of lading received; in the case of port shipments, they will be placed in the custody of the steamship company and bill of lading will finally be given as evidence of their receipt; the for- warder, steamship company, or exporter must likewise secure consular invoices; (6) entering goods at the cus- toms house— that is, an export declaration must be fur- nished to show an exportation of goods for governmental records; (7) the invoice must be prepared and the draft upon the foreign customer drawn, together with the bill of charges not included in the invoice amount; (8) in- voice, draft, and bill of charges are attached to the bill of lading and insurance certificate or policy and the documents may be negotiated at the bank ; this negotia- tion may consist in a presentation for collection or in a discounting of the draft; (9) the exporter mails ad- vice of shipment to his customer. After collection has been made, the transaction is complete. 518 PROBLEMS IN EXPORT SALES MANAGEMENT The course of an export order in a merchant or com- mission house varies somewhat in the earlier stages: (1) The exporter receives an inquiry from the customer abroad as to price and conditions under which the de- sired goods are procurable. (2) The exporter receives quotations and reference samples from, one or more manufacturers. If the goods desired are to be of spe- cial make or brand, only the original manufacturer or sole vendor will be communicated with. (3) The ex- porter obtains whatever additional quotations — freight, insurauce, exchange, etc. — he may need for the compila- tion of selling price. (4) The exporter transmits his offer to the foreign inquirer. In case he works on com- mission only, the original manufacturer's price will be transmitted. (5) The exporter receives his order from the customer. (6) The exporter places the order with the maker. (7) The goods reach the place of export or the forwarding agent for shipment. (8) The succeeding steps are precisely the same for the export merchant as for the manufacturer who receives his order direct from the foreign customer. The exporting manufacturer may shift to other agen- cies a number of the acts which must be performed in order to deliver his export order promptly. The extent to which he will do this will depend partly upon his loca- tion, partly upon the size of his organization, and partly upon his general attitude toward export trade. The manufacturer must himself decide upon the acceptance of the order and the extent of credit, although he may secure credit insurance. The manufacturer cannot shift the acknowledgment of the order to some other agency, but he may turn the goods over to a commission house or a forwarder to be packed — ordinarily, however, this is not done. The shifting of functions occurs after the goods have been prepared for shipment and have been shipped by rail or turned over to the forwarder at the port of shipment. The forwarder may secure insurance, he will provide for the consulation of invoices, for the DELIVERY OF EXPORT ORDERS 549 customs declaration, and will even provide for the draft and bill of charges. It is evident that the negotiation of documents constitutes likewise shifting to banks of the responsibility of collection and sometimes of financing. From the view-point of the individual manufacturer the questions which arise outside of the many detailed questions with regard to the particular documents, which become a matter of routine when once learned, may be summarized by the following outline: A. Relation of Filling of Orders and Delivery of Goods to Export Selling. Should the filling of orders and delivery of goods be con- sidered functions of the export department? If not, how should the proper coordination between the shipping, bill- ing, and export departments be made in order that mistakes destructive of good-will shall not be of abnormal frequency ? To what extent should technical knowledge of filling and delivery of export orders be considered satisfactory equip- ment for the personnel of the export department? Are special plant and equipment necessary for the filling of orders and equipment for delivery of goods on export orders ? B. Handling of Export Orders. What routine is required for the handling of orders? Is it possible to establish a standard practice in the han- dling of export orders? Should stocks of finished goods be carried at other points than the factory, in order to provide for prompt shipment of goods on export orders? What type of warehousing facilities should be used for such a purpose? Under what conditions is it wise to utilize forwarders m the shipment of export orders? 550 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 138 The Export Shoe Company — Handling Orders* The Export Shoe Company manufactures a line of high-grade shoes, which it distributes in domestic and foreign markets through exclusive agencies. It has built up a very desirable chain of exclusive agencies abroad, but in more recent times has found the changes among agents rather more numerous than are desirable. Careful examination of the causes for severance of connections with several important agencies revealed that the diffi- culty lay not in the quality of the shoe or the salability of the product, but rather in the difficulty of agents securing the type of service and delivery to which they thought they were entitled. Although the company in every case had attempted to make good any losses incurred through mistakes in packing and shipping, the officials began to realize that remedying of errors was not so satisfactory in cementing the relationships with agencies as the prevention of mistakes. It was found that in some of the shipments delay was due to the fact that insurance was not provided in time to allow the order to be shipped on the specified boat; in other cases, the production department had not finished the shoes in time ; in still other cases, the goods had not been packed properly. The organization of the company was briefly as fol- lows. Under the president and managing director were the vice-president and secretary of the corporation, the factory superintendent, the merchandise manager, and the sales manager. The export manager, credit man- ager, and advertising manager were coordinate in posi- tion and reported to the sales manager. Packing and shipping were under the control of the merchandise manager, to whom the traffic manager reported. The operations in the delivery of an export order were per- formed by tlie various departments and sub-departments as follows. The export manager received the order and *See pages 001 through 6^8, Addenda 1, DELIVERY OF EXPORT ORDERS 551 passed upon the credits. The production department prepared the production order and attended to mak- ing the shoes. The traffic manager provided for securing the steamship space, for insurance, and secured the bill of lading. The shipping clerk provided for the pack- ing and cartage to the dock and secured the dock receipt. The export department then looked after the invoicing and bill of charges. The credit department took the papers and negotiated the draft. It was customary to turn the preparation of consular invoice and certificates of origin over to the steamship company. The problem confronting the Export Shoe Company was that of devising some sort of system which would cause these operations to be performed in such a way that the goods would be packed, the necessary documents secured, and the shipments sent off on schedule time. The desirable system would be to have the goods arrive at the packing room so that they could be packed and delivered at the dock a day or two before the shipping date. The invoice should be ready by the shipping date, also the insurance certificate. The draft and bill of charges should be added on the day of sailing. How should the Export Shoe Company go about ar- ranging for scheduling of operations so as to provide against future delays because of failure of any of the departments to perform their operations on time? 552 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 139 MacLean Company — Routing of Orders* The MacLean Paper Company has been faced with a number of difficulties arising from the handling of its foreign orders. When an order for export is received at the home office it goes through the following routine : 1. Export department for verifying and pricing. 2. Credit department for rating. 3. Planning department for manufacturing schedule. 4. Shipping department for packing. 5. Traffic department for routing and making out bill of lading. 6. Billing department for bookkeeping and forward- ing of papers. Under this arrangement the traffic department is not informed that arrangements are being made until the goods are actually routed. Consequently shipments to Australia and other distant points are sometimes com- pelled to wait over until the next boat a month or so later, because the goods were not ready when the boat sailed and no space had been engaged to permit im- mediate shipment. The planning department has fre- quently upset its usual routine to hurry through an order marked "rush," only to find when the goods were finished that there was no boat available for three weeks and that there would have been ample time to have com- pleted the order by following the regular schedule. The order of the export department with its terms and prices quoted has been used as a work sheet for each of the other departments in order to save paper work and additional system. Consequently, almost every one in the organization knows what prices have been quoted each customer and there has been some trouble from competitors who have thereby been able to secure this *For general references upon the handling of orders, cf. Hough, Prac- tical Exporting, Chap. XII; Bacher, Export Technique, (Business Training Corp.), Chap. I; Preciado, Exporting to the World, Chap. XIII; Bureau of Foreign and Domestic Commerce, Miscellaneous Series No. 81, Selling in Foreign Markets, Chap. XIII; and Rosenthal, Technical Procedure in Exporting and Importing, Part I, DELIVERY OF EXPORT ORDERS 553 knowledge. Numerous suggestions have been made to correct this e\dl, but each plan has involved a compli- cated system mth much additional paper work. The following system of routing foreign shipments has been proposed by the export manager to overcome these dif- ficulties : 1. The Export Department passes and verifies all foreign orders. These forms, giving the kind of goods ordered, the specifications, number of units, and specific instructions regarding packing and shipping, are for- warded to the traffic department. 2. The Trafiic Department arranges for the sailings, stamps the order with the date when the goods are to be ready in order to avoid delay, and notes any special in- structions that must be complied mth because of the manner in which the goods will be handled in loading and unloading the ships or transporting to the point of destination. 3. The Credit Department secures a report on the customer, if this has not already been done, and deter- mines on what terms the customer should be sold. 4. The Planning Department checks the stock on hand to see if the order can be filled immediately. If not, it issues instructions to manufacture. In case its schedule does not permit complying with the date set by the traffic department for shipping, the planning department noti- fies both the export and traffic divisions. 5. The Shipping Department checks the finished goods with the order and is responsible for their being packed and loaded into cars which have been provided by the traffic division. 6. The Traffic Department receives the returned order, makes out the bill of lading, and the necessary papers are issued and sent to the export department. 7. The Export Department stamps the prices and terms on the order and forwards it to the billing de- partment. 8. The Billing Department prepares the bills, drafts, and similar documents to be sent to the customex'. 554 PROBLEMS IN EXPORT SALES MANAGEMENT 9. The Accounting and Auditing Department then checks the bill and enters the amount on the books. 10. The Export Department then mails the documents to the customer so that they mil reach him as soon as the shipment of goods. Should the MacLean Paper Company adopt the pro- posed schedule for routing foreign orders? What further changes in its schedule are advisable? Problem 140 Denby Company — Packing Goods for Export* When the Denby Company first started its export busi- ness it made no different provisions for packing wall board, floor covering, roofing, prepared shingles, and similar products than were used for long distance ship- ments in the United States and Canada. The managers reasoned that in sending broken-lot shipments to San Francisco from the factory in the East, the goods would be transferred from one car to another from three to five times and would be subject to considerable handling and rough treatment. In shipping to Cuba the goods *Upon the packing of goods for export, see Hough, Practical Export- ing, Chap. XI; Preciado, Exporting to the World, Chap. XIV; Dudeney, The Exporter's KandhooTc and Glossary, Chap. XXX; Irving National Bank, Trading with the Far East, pages 113-117, and Trading with Latin America (by E. B. Filsinger), pages 119-125; Hooper and Graham, Import and Export Trade, pages 46-48; Bacher, Export Technique, (Business Train- ing Corp.), Chap. IX; also the following: Proceedings of conventions of National Foreign Trade Council : 1918, p. 555, Grosvenor M. Jones — "South American Port Facilities as Eelated to the Subject of Export Packing." 1919, p. 557, Capt. H. R. Moody— " Packing for Export." 1921, p. 260, C. C. Martin— "One Essential of Successful Ex- porting. ' ' The World's Markets. Aug. 1919, p. 26— "Packing for Export." July 1920, p. 34— "An Example of Poor Packing." Aug. 1920, p. 41— "Theft and Pilferage." Nov. 1920, p. 29— "Good Export Packing." DELIVERY OF EXPORT ORDERS 555 would be loaded into the ship and unloaded at their destination with no change or excess handling. Conse- quently, these men believed that with reasonable care the same packing would be sufficient. They found, how^ever, that in loading the ship their goods were placed in a sling, hoisted over the side, and dropped into the hold. There they were tossed into the most convenient space available. Boxes and other mer- chandise were piled into the same hold and during the voyage much chafing and many hard knocks resulted whenever rough weather was encountered. In unloading, the goods w^ere subjected to similar treatment and fre- quently were left on the docks exposed to the rain and sun for weeks at a time. When the goods were finally loaded aboard a truck it was found that foreigners did not take the same care as Americans. In unloading, boxes and crates were often pushed off the truck and allowed to fall to the ground instead of being eased down as was the custom in the United States. As the foreign trade of the Denby Company has de- veloped, it has been found that the foreign customers watch shipments more closely than the average Ameri- can. Crates, boxes, and paper must be better in order to preserve the goods in proper condition because of the unusual handling and exposure which they must under- go. Occasionally, foreign clients even go so far as to lay down extreme rules which the company must follow in packing their goods, the additional expense being charged to the customer. June 1921, p. 22 — "Problems of Exporters to Europe." June 1921, p. 27— "Export Packing." Export Trade and Exporters' Eeview. Apr. 19, 1919, p. 24— "The 'Eailroads' of Africa." July 10, 1920, p. 14 — "Shipping Goods to the Mexican Importer." Oct. 9, 1920, p. 58 — "Important Factors in Proper Export Packing." Mar. 5, 1921, p. 16 — "Society Island Banking System Eestricts Trade." July 9, 1921, p. 12 — "A Freight Agent's Viewpoint on Foreign Packing. ' ' Sept. 10, 1921, p. 5— "That Perplexing Packing Problem." Oct. 1, 1921, p. 64— "Better Packing the Vital Problem." Oct. 8, 1921, p. 18— "Where Climate Calls for Special Packing." May 20, 1922, p. 24— " Conditions in Kobe Call for Strong Packing." 556 PROBLEMS IN EXPORT SALES MANAGEMENT Numerous complaints had convinced the company that its success in foreign trade depended on delivering its merchandise promptly and in good condition. Its export business had grown to almost $1,100,000 annually and, therefore, a man experienced in preparing goods for foreign shipment was employed as the head of the pack- ing and shipping department. This man's duty was to lay down specifications for packing each shipment, give instructions as to how the work should be done, and in- spect each shipment to see that his instructions had been carried out. Improvement was noticed at once; but al- though the number of complaints was lessened a few of the company's foreign customers continued to find fault. Upon investigation it was found that in packing floor covering, although the burlap had been sewn on the outside as the foreman had instructed, the packers had left out the waterproof paper in which each roll should have been wrapped. Instances of a similar nature oc- curred from time to time and the export manager decided that a standard practice should be laid down for the packing of merchandise for shipment abroad. He pro- posed that an efficiency expert should study the best methods of packing the products which the company ex- ported and that these specifications should be accessible to all men in the packing department. Then, when an order was received to ship roofing paper to New Zealand, the notation would be made * ' Pack according to standard practice 19." These standard practice instructions would be as follows: FLOOR COVERING— FINISHING OF, FOR EXPORT Finished in regular way and in addition the roll is placed inside a burlap covering 84" long and 38" in cir- cumference sewed from 40" burlap. Slack is taken up on sides by sewing, and two "ears" left at each end to permit easy handling. Additional labol pasted outside the burlap. Net wt. 60 sq. yd. roll 209. lbs. approx. Regular finishing materials . . . 7.0 Burlap cover 1.1 Shipping weight 217.0 lbs. approx. DELIVERY OF EXPORT ORDERS SSt Outside dimensions of 60 sq. yd. roll finished in burlap 12" D.x73''. WALL BOARD CRATES FOR EXPORT Material — spruce Sides 11/2'' stock Ends 11/2' Slats 1/2' Slats 6" wide to be 9" apart. All crates bound in strap iron around ends. Sheet Size 7x32 8x32 9x32 10x32 12x32 7x48 8x48 9x48 10x48 12x48 No. in crate 50 50 37 37 37 37 37 24 24 24 Sq. ft. I sheet 18 2-3 211-3 24 26 2-3 32 28 32 36 40 48 Sq. ft. in crate 933 1-3 1066 2-3 Inside dimensions of Cu. ft. crate (must be exact) space of Length Width Depth crate 986 2-3 1184 1036 1184 864 960 1152 841// 961/2' IO8I/2' 1201/2' 1441/2' 841/2' 96i/>' 108 1/0' 1201/2' 1441/2' 321/4' 321/4' 321/4' 321/4' 321/4' 481/4' 481/4' 481/4' 481/4' 481/4' 16.5 18.8 16.3 18.1 21.6 16.7 18.5 16.9 18.7 22.3 These dimensions allow for lining crates mth case lining only. No wrapping on the wall board. Numerous objections were raised, however, to the ex- port manager's plan. In the first place it would be ex- pensive to employ an efficiency expert to plan the stand- ard practice for packing for export. Furthermore, it was pointed out that it was not necessary to pack goods for shipment to all foreign ports with the same care that was needed in shipping to Australia or other dis- tant markets. The regulations of various countries in regard to stencilling, marking, and packing certain grades of merchandise varied from time to time and changes would have to be made accordingly. Also, several of the officials asserted that even if such cards were made up, the men in the packing room would not consult them. They said that the shippers had already been instructed 658 PROBLEMS IN EXPORT SALES MANAGEMENT in the proper method of packing: for export and that the present complaints which the comjjany was receiving were due to their failure to follow instructions. They said that the present foreman understood the details of this w^ork and that it was up to him to get results. Should the Denby Company adopt a standard practice for packing goods for export? Problem 141 The Hood Adding Machine Company — Packing of Machinery In July, 1920, the Hood Adding Machine Company of Hoboken, New Jersey, received an order from a large mining company in the Peruvian Andes for three add- ing machines to be delivered within three months, with sight draft against documents. The Hood Company had no agent in that country nor up to the time had they engaged in any trade with Latin American countries. The machines were shipped by way of the Panama Canal and Callao to destination. They were packed in wooden boxes lined with burlap and the machines were braced on the inside to hold them solid. Transshipment had to be made at Panama where the machines had to remain for some time. The shipment was delivered in October, and the draft was paid upon presentation of the documents to a bank in Lima. When the consignees inspected their machines, how^ever, they found that all of them were rusted beyond repair. Immediately they put in a claim to the Hood Company for full restitution of the purchase price. How should these machines have been packed! What action should the Hood Company take against such a claim? What other action should have been taken to protect further possible business in Peru? DELIVERY OF EXPORT ORDERS 559 Problem 142 The Murray Company — Changing Packing Methods* The Murray Company, which sells women's garment trimmings, such as soutache, rickrack, and other decora- tive braids, grosgrain ribbon, moire beltings, fancy lac- ings, and similar products, has received frequent requests from foreign customers to use tin-lined cases in packing goods for foreign shipments. Many of these shipments are made to Japan, China, India, and South America, where goods must pass through tropical countries en route to port of destination. Being subjected to a hot, moist climate, or being unloaded from ships by freight lighters, they must be packed in such a manner as to *For the use of parcel post in export trade, cf. the following: Johnson, Ocean and Inland Water Transportation, Chap. VII; Preciado, Exporting to the World, pages 69-73 ; Irving National Bank, Trading with the Far East, pages 123-125, and Trading with Latin America (by E. B. Filsinger), pages 112-114; E. G. Dun & Co., Practical Helps for Exporters, Pamphlet No. 2 and Pamphlet No. 23; Port of Boston, March 1919, "Parcel Post as an Aid to Foreign Trade. ' ' Boston Evening Transcript. April 10, 1919— "World Parcel Post." April 10, 1919 — "Parcel Post Developments." The World's Markets. Mar. 1919, p. 26— "Better Foreign Parcel Post Advocated." Nov. 1919, p. 26— "Parcel Post Progress." Nov. 1919, p. 37— "Parcel Post to Cuba." Feb. 1920, p. 37— "Parcel Post Extensions." May 1921, p. 25— "Postal Extensions." Mar. 1922, p. 17— "Improved Postal Facilities." Printers' Inlc. Apr. 10, 1919, p. 109— "Urges Better International Parcel Post Arrangements. ' ' Oct. 28, 1920, p. 89— "How to Use the Foreign Mail Service in Export. ' ' Export Trade and Exporters' Review. Mar. 12, 1921, p. 12— "Sales by Mail to the Tropical Dealer." Apr. 30, 1921, p. 55— "Our Parcel Post Exports." Dec. 31, 1921, p. 18— "A Method of Stopping Short Postage." Feb. 4, 1922, p. 9— "Preparing Parcel Post Shipments." National Foreign Trade Council — "International Parcel Post Extension," by Hon. Otto Praeger; and proceedings of 1919 convention, p. 434 — "Direct Selling through the Parcel Post," by M. D. Howell. 560 PROBLEMS IN EXPORT SALES MANAGEMENT guard against iniklew, damage from salt water, and other causes. The company's present method of packing foreign shipments is to use a case made of pine stock seven- eighths of an inch thick, carefully fitted together with tongue and groove. Each case has a heavy waterproof lin- ing; the individual packages of merchandise are wrapped in burlap and secured with a lead seal ; the case is then bound with strap iron on all sides. Although com- plaints have been received occasionally, most shipments have apparently arrived in good condition. To change the present container to a tin-lined case would more than double the packing charges and, because of the price competition with European houses, this alteration has not heretofore been regarded favorably. But because the number of customers' complaints appears to be in- creasing the firm is considering whether it should con- tinue its present packing methods, assuming the risk of delivering the merchandise in good condition, or whether it should increase its costs through the adoption of better packing methods. Many articles have appeared in trade papers decrying American packing methods but in the words of the presi- dent of the Murray Company — "The incidents quoted in trade papers illustrating the poor packing methods of American exporters are either exceptional or else are the war-time mistakes made by a few inexperienced ex- porters who were entirely ignorant of conditions abroad. Most foreigners have but little conception of the methods of doing business in the United States. When they fail to specify that they have no cranes for handling freight and that all cargo must be handled by hand, a few manu- facturers make the mistake of shipping twelve hundred pound cases. Occasionally one case out of a large ship- ment of goods may be run over by a truck or damaged by being pitched off the top of a high truck load. Such accidents are impossible to prevent, yet German and other foreign agents have made much of such scattered instances and have spread the story that American pack- DELIVERY OF EXPORT ORDERS 561 ing methods are inefficient. As a matter of fact the American exporters, as a class, are among the most suc- cessful in the world, their methods are evolved after scientific study, and they are not content to follow the old-fashioned, rule-of-thumb practice of foreign houses. **As for packing all foreign shipments in tin-lined cases, let me tell you an incident which occurred only the other day. We had an order from a Japanese firm requesting that its merchandise be shipped in tin-lined cases. The cost of carrying out these packing instruc- tions would have made it unprofitable for us to have filled this order. As soon as we learned what the ad- ditional cost would be, we cabled the Japanese firm in Yokohama explaining to them the cost of carrying out their instructions, but saying that we Avould be glad to carry out their wishes providing they would pay for the additional cost. We received a reply almost immediately advising us to pack the shipment in our usual manner. ''The actual number of complaints of damaged ^oods resulting from our present method of packing has been small; but in spite of this, many of our customers ap- pear to favor tin-lined cases because European houses frequently use this method of packing. Where skilled labor is comparatively cheap, tin-lined cases, fastened together with screws, and other elaborate packing methods are not prohibitive, but in America, where wage rates are high, economical production demands a mini- mum amount of hand labor. But it must be remembered that most foreign buyers can scarcely be expected to continue to order goods unless they are satisfied. There may be little or no actual cause for their demands, but in selling in the foreign field the prejudices and buying habits of our customers must be taken into account. I must admit that we are in a quandary as to what attitude we should take toward the demand of our customers that we use tin-hned cases in foreign shipments." A proposal has been made that the company should devise a number of small containers, should break up its shipments into comparatively small lots, and utilize par- 662 PROBLEMS IN EXPORT SALES MANAGEMENT eel post facilities in many countries instead of attempting to send shipments in large cases by ocean freight. To what extent is this proposal practicable? Problem 143 National Packing Machine Company — Methods of Packing Believing that the suggestion of one of its customers as to the desirability of shipping a machine in small cases was made in the light of a suggestion rather than a re- quirement, the National Packing Machine Company shipped one of its 3900-lb. machines, knocked down, in two cases to a small town located near Bucaramanga, Co- lombia.* With the modern equipment at the docks in New York the cases were easily loaded into the hold of the steamer; and although the unloading was more diffi- cult at Barranquilla, nevertheless it was accomplished. There the machine remained on the docks for over a year because in order to reach their destination the cases had to be loaded into a steamer by hand, carried up Magda- lena River, transferred to a short railroad line running to Bucaramanga, and then carried by j)ack mules for almost 100 kilometers. To avoid such losses in the future, the company is con- sidering the adaptation of its shipping methods to the local conditions in each country. At several Japanese ports, for example, machines must be unloaded by hand because of the lack of mechanical equipment; at some South American ports the machines must be unloaded by lighters because the harbor is too shallow to permit the ships to approach the docks; whereas in other cases the machines must be packed on the backs of mules or llamas because of the lack of modern transportation *Although many articles on packing and shipping goods for export have appeared in foreign trade magazines, the officials of the National Packing Machine Company have always held that these admonitions applied to shoes, textiles, and similar merchandise rather than to the shipping of machinery. DELIVERY OF EXPORT ORDERS 563 facilities. To assist in this work it is proposed that sales- men should submit with their orders more detailed ship- ping instructions than are given at the present time in order to assist the shipping department in packing each machine to meet local conditions abroad. At the outset this plan meets with serious difficulty. One of the company's machines which weighs 3900 lbs., completely assembled, cannot be broken do^vn to less than 150-lb. packs without complete dismantling. Al- though 75-lb. packs are frequently requested for pack trains in the mountain districts, to take a machine com- pletely apart is not only costly because of the skilled labor required, but it is also a dangerous policy as it is difficult for even the company's traveler to assemble it again with the assistance of only native mechanics. Furthermore, the base which alone weighs 1200 lbs. is cast in a single piece and cannot be ordered broken down. It might be possible to change the design of the ma- chine so that the objection of a heavy base could be overcome. Several competitors ' machines are capable of being broken do\\Ti into standard packs for transporta- tion, but the National machines are superior in operation to those of competitors mainly because of this sturdy base. The cost of making this change would be con- siderable, since it involves discarding patterns in use at the present time ; besides the proportion of foreign orders requiring packing in small cases is not large. Another plan proposed is that the engineers of the National Packing Machine Company should work out methods of handling heavy-weight cases by block and tackle that could be easily put into effect by foreign workmen. Photographs showing four mules properly equipped with yokes and pack saddles to handle the heavy base could be sent to the customer together with full instructions as to the necessity for frequent rest and changes of animals under such heavy load. Diagrams showing the center of gravity of the case and giving suggestions as to the best way of equalizing the load might also be sent. By utilizing these suggestions, based 564 PROBLEMS IN EXPORT SALES MANAGEMENT on past experience in similar situations, the customer or his agent should be aided materially in transporting this machinery. Usually, however, as the work of transporting mer- chandise is done by agents familiar only with the tra- ditional methods of handling merchandise it is doubtful how much help would be derived from such instructions. Furthermore, the engineers not being familiar with the roads over which the shipment was being transported might suggest in their instructions a hitch which it would be impracticable to use on a narrow pass. If in attempt- ing to follow the company's instructions the machinery were injured in transport, it is quite possible that the customer would hold the company responsible for dam- ages to his shipment which were in reality due to mis- takes committed by his agent. Problem 144 Reid Chemical Export Company — Inspection of Cargo The Reid Chemical Export Company was organized to carry on the foreign trade of a number of chemical manufacturers located for the most part on the eastern sea-board of the United States. The products handled by this company vary from commercial fertilizers, bleach- ing powder, and sulphuric acid, shipped in large glass carboys, to chemical dyes and high-grade drugs. The firm maintains an office in New York City and distributes its products abroad through commission houses, manu- facturers' agents, and two or three of its own salesmen. Arrangements for cargo space, insurance, and other mat- ters, on orders not handled by commission houses, are usually taken care of by the Reid Company itself. One of the principal difficulties the firm is facing in the export field is the number of complaints made by its customers as to the condition in which its goods are re- ceived. Before the recent depression, high-grade chemi- DELIVERY OF EXPORT ORDERS 565 cals were difficult to obtain and few objections were filed on the part of customers as long as the goods finally arrived. With the fall in price there has been a large increase in the number of complaints received. The Reid Company has frequently tried to hold the steamship companies responsible for the damaged condition in which its products have been turned over to foreign buyers, but without much success. When the firm claims that the goods were not properly handled or stowed by the steamship company, the counter-charge is made that they were not packed properly to begin wdth, or that the damage occurred before the goods were turned over to the steamship company or after the ship had dis- charged its cargo at the foreign port. The Reid Company has investigated the packing methods of the chemical manufacturers that it represents and it has found that ordinarily it would be not only diffi- cult, but expensive, to improve on present methods. Most of the recent complaints have arisen over shipments of bleaching powder which has a highly corrosive action on the steel containers in which it is shipped. If the product is not carefully stowed or is placed where it will come in contact with sea water the corrosive action is accelerated with the result that, not only is the product rendered useless through exposure to water and air, Irat occasionally other products, stowed in immediate prox- imity, are ruined by the action of the powder. Although the steamship company is responsible for the proper loading and stowing of all cargo, the Reid Company is considering whether it would not be advisable to estab- lish an inspection system at the docks to insure proper attention to this work. 566 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 145 Thompson Roofing Company — Preventing Damage in Shipment Although the Thompson Roofing' Company has taken steps to insure the proper packing of foreign shipments, claims for damages continue to come in from many cus- tomers. At present each roll of roofing paper is wrapped in two thicknesses of heavy paper, sheet iron plates cover each end and are held in place by an iron rod passing through the hollow core of the roll which is then covered with burlap, stencilled, and tagged with the company's name and address. The export manager is convinced that it would be very costly to improve the packing on each roll and it is his opinion that the transportation companies are at fault. To settle the matter he sent a special agent to New York City to inspect and report on the methods of handling and loading merchandise on all boats carrying Thompson roofing paper in their cargoes. After six weeks ' investigation the agent reported that the fault lay both with the Thompson Roofing Company and with the steamship lines. He stated that about one- half the difficulty appeared to be due to the steamship company. In loading a shipment, rolls of roofing paper were put in a sling, hoisted over the ship's side, and dropped into the hold. In stowing the cargo below decks insufficient care was taken to secure freight so that it would not be tumbled about when the ship struck rough weather on its voyage. The inspector stated, how- ever, that fully fifty per cent of the trouble was caused by the company's method of scheduling and handling shipments. As soon as an order was filled at the mill the company sent the shipment to New York. There it was either left around on the dock, if the time at which it arrived was near the date of sailing, or was taken to a warehouse for temporary storage. The roofing paper that was left on the dock was exposed to rain and other elements, frequently bumped into by trucks, many DELIVERY OF EXPORT ORDERS 667 shipments being broken up because they were moved to different places by laborers in order to make passage- way for trucks. By sending the roofing paper to the warehouse the additional expense of loading and truck- ing the goods from the freight yard to the warehouse, warehouse charges, and the loading and trucking from the warehouse to the wharf were incurred. There was also chance of injury from such handling, since the roof- ing paper was frequently tumbled off the truck and dumped into the warehouse without proper care being taken. To remedy the trouble with the steamship company the agent of the Thompson Roofing Company suggested frequent inspection of the loading of freight, particularly that going to Australia and other distant parts where because of the long voyage the ship would be subject to much buffeting by the waves. To remedy the damage caused by the company 's faulty method of handling ship- ments, the agent suggested that all shipments should be scheduled from the mill so that the goods would arrive on the wharf not more than a day or two before the steamer loaded. This schedule could be followed with comparative ease, since the traffic manager is furnished with the monthly sailing list of vessels, the date of sail- ing, and their destination. Such a system would eliminate the damage from ex- posure to the weather and the injury to the goods from being run into by trucks or tumbled about the wharf. It would also eliminate excess trucking and warehousing charges and the agent explained that with the fast freight service available it should be possible to schedule ship- ments from the factory to reach the steamer with a lee- way of from 24 to 48 hours. The general manager said that although this system might work for a company with a factory located near the port, it would not be practicable for the Thompson Company with its factory located in Ohio, several hun- dred miles from New York City. The freight service was uncertain, and although fast freight should deliver 568 PROBLEMS IN EXPORT SALES MANAGEMENT goods in New York in two or three days' time, there were a number of instances where it had failed to do so. He agreed that the company might save money from damage claims ; but if one shipment out of ten arrived too late to make the boat, the customers who were dis- appointed would undoubtedly give their orders to a com- petitor in the future and the firm might lose more money in the end. Furthermore, the company frequently en- gaged cargo space some time ahead in order to secure the lowest possible rates. If the roofing paper failed to arrive before the ship sailed, this space would have to be paid for and more money might be lost in this way than would be saved by partially eliminating damages on the other nine shipments. Should the Thompson Roofing Company adopt the suggestion of its agent? Problem 146 Parker Tire MANUFACxuftiNG Company — Packing AND Shipping Goods for Export In 1919 Romero Quesada of Buenos Aires visited the United States to make arrangements with manufacturers in this country for handling their products in Buenos Aires "and Rio de Janeiro. Among other firms the Parker Tire Manufacturing Company, located in Indiana, ar- ranged to give him an agency for its product. Since the company had no New York office, it employed a forward- ing company in that city to attend to the details of ship- ping. Mr. Parker consulted the New York Classified Telephone Directory and picked the Russell Forwarding Company because its name was printed in blacker ink than the others. Since he said "all that was necessary was to send a truck to the railroad depot, get the goods and take them to the wharf," the choice was in his esti- mation of little importance. The first shipment consisting of sample tires was sent in the early part of June, 1919. Since future business DELIVERY OF EXPORT ORDERS 569 was to depend on these samples great care was exercised in selecting the tires for this shipment. Mr. Parker gave the selection his personal attention, supervising each item to be sent. The lot was then sent to the shipping department and Mr. Parker turned his attention to other matters. About ten days later he was surprised to receive a wire sent collect from the Russell Forwarding Company as follows: — ''STEAMSHIP ELMIRA ON WHICH SPACE FOR TIRE SHIPMENT ENGAGED NOW LOADING WHEN WILL SHIPMENT ARRIVE RUSSELL FORWARDING COMPANY" He immediately called in his shipping clerk, who in- formed him that on account of rush shipments he had not sent the South American lot. The man said it would take so long to go anyway that he did not think it w^ould make any ditference if this shipment were delayed. Mr. Parker, realizing from the wire that boat connections must be made, ordered shipment by express immediately and wired the Russell Forwarding Company that it would go forward at once. Two days later another wire was received: — "PARKER TIRE MANUFACTURING COMPANY BILL LADING MADE OUT TO ROMERO QUE- SADA RECEIVED INSTRUCT EXPRESS COM- PANY AT ONCE DELIVER TO US RUSSELL FORWARDING COMPANY" The necessary instructions were wired to the express company in New York and Mr. Parker said to his secre- tary: ''At last we have got that shipment off!" A few hours later, however, the New York bank through which he had arranged to finance these shipments called him on the long distance 'phone. The bill of lading was not made out so as to be negotiable. Would he please substi- tute another immediately and forward it by special de- 570 PROBLEMS IN EXPORT SALES MANAGEMENT livery? The bank hoped that it would arrive in season for the goods to go forward on the boat planned for so that the space would not have to be paid for and not used. Mr. Parker had a new bill of lading made out to the Russell Forwarding Company and sent it forward at once. The next morning a third collect wire w^as awaiting Mr. Parker: — "PARKER TIRE MANUFACTURING COMPANY TWELVE BUNDLES TIRES ARRIVED IMPROP- ERLY PACKED FOR FOREIGN SHIPMENT BILL LADING SHOWED ONLY ONE ITEM WITH NO NET WEIGHTS REQUIRES CHANGE IN SPACE RESERVATION WHICH WE HAVE BEEN ABLE TO ARRANGE NOT TIME FOR REPACKING HAVE MARKED AND NUMBERED BUNDLES STEAMSHIP COMPANY WOULD NOT ISSUE CLEAN BILL LADING BUT HAVE FORWARDED WITH WAIVER OF RESPONSIBILITY FOR DAMAGE EN ROUTE AT SUGGESTION OF CHENEY NATIONAL BANK PLEASE CONFIRM ACTION RUSSELL FORWARDING COMPANY" Mr. Parker threw the telegram down helplessly, be- ginning to wish he had never tried to go into foreign business, and ordered a wire sent to theRussell Forward- ing Company approving their action. Later in the mopn- ing the bank telephoned him, stating that they would be liable as the matter stood if they accepted his draft, since the steamship company could not be held for dam- ages with the waiver on the bills of lading. He assured the bank that he would accept full responsibility for damages. That afternoon he called in his head shipper, showed him the wires, and asked him why the shipment had not been properly packed. The shipper said he had given the consignment special attention and had packed the tires carefully in burlap, with the edges sewed together. He said the bales had been more carefully packed than any shipment he had ever sent and he did not under- DELIVERY OF EXPORT ORDERS 571 stand what the New York export men were thinking about. When asked if he had marked the bundles, he said that he had tagged each one with two tags, as was his regular custom, and that he had wired them on himself to be sure they were secure. He said he did not understand what was meant by "bill lading showed only one item with no net weights." He had put on the gross weight and tare for the shipment and did not know what more they wanted. They could figure out the net weight if they wanted it. Neither did Mr. Parker know what was wanted ; conse- quently he decided he had made a bad choice of for- warders and that the Russell Forwarding Company was unsatisfactory. How should the shipment have been packed and shipped ? What was wrong with the Parker Tire Manufacturing Company organization that such mistakes could be made on that shipment even when everyone in the company was interested to have it handled properly! Are the defects such that they can be corrected with- out a change of organization! If a change must be made, would it be cheaper and easier to turn the details over to a forwarding company or would it be advisable to make the changes in the pack- ing and shipping departments in the event that the ex- port business develops! 572 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 147 KiNGSLEY Company — Freight Forwarding Service* Although the Kiiigsley Company has opened an ex- port office in New York it is continuing to use the services of freight forwarders to handle its shipments, since the company's present office staff consists only of an export manager and a stenographer who devote most of their attention to corresponding with foreign customers, placing foreign advertising, and carrying on the com- pany's business with commission houses and foreign manufacturer's agents. Companies with no representa- tives in New York frequently find it to their advantage to deal through these agencies, but these functions are being performed by the New York offices of a number of firms and the Kingsley Company is also considering the advisability of dispensing with the forwarders' services. This firm sells electric lighting fixtures, sockets, plugs, and similar products, most of its foreign business being handled through commission houses and manufacturers' agents in South America, China, the Dutch East Indies, Australia, and the north European countries. In 1919, its foreign sales amounted to over $200,000, but in both 1920 and 1921 they fell considerably below this figure. Through intensive advertising the company hopes to re- •For information upon this subject, cf. Hough, Practical Exporting, pages 40] -409 ; Kidd, Kidd on Foreign Trade, pages 348 and 349 ; Preci- ado, Exporting to the World, Chap. XVI; Talbot, The Export Forwarder, (Part III of "Export Houses", Business Training Corporation); Bacher, Export Technique, (Business Training Corp.), Chap. IV; and the follow- ing articles: The World's Markets. Apr. 1919, p. 22 — "The Services of the Freight Forwarder." May 1919, p. 38 — "Freight Forwarding for Export." June 1921, p. 37 — "Foreign Freight Forwarders." Export Trade and Exporters' Review. Apr. 30, 1921, p. 64—* ' The ' Why ' of the Freight Forwarder. ' ' Dec. 31, 1921, p. 11 — "The Main Avenues of a Forwarder's Ser- vice. ' ' Proceedings of conventions of National Foreign Trade Council, 1919, p. 511 — "Freight Forwarding for Export," by W. J. Riley. DELIVERY OF EXPORT ORDERS 573 gain its former position in the foreign field. Since the service performed by freight forwarders is charged to customers, unless special arrangements are made to the contrary, the company is not concerned directly with any saving to be derived by handling this work itself, except in so far as more economical and more satisfactory ser- vice increases the good-will of its customers. By securing ocean freight rates for large amounts of cargo space the freight forwarder is in position to ship small units at a cheaper rate than can usually be secured by the manufacturers, but it has been the experience of the Kingsley Company that these low rates are not handed on to customers. In other words the freight for- warder buys space at wholesale and sells it at retail, thus securing a profit in addition to the commission usually paid by steamship lines to forwarding companies who act as freight brokers. In making a careful study of the service performed by a high-class freight forwarder, the export manager secured the chart of a forwarder's functions which ap- pears on page 574.* This chart so impressed the directors of the Kingsley Company with the complications involved in the service that they are uncertain whether it would not be better to continue to have the freight forwarders perform this service for them rather than for the com- pany to try to handle it. •The chart is reproduced by courtesy of D. C. Andrews & Company of JVew York and Boston, who hold the copyright. 574 PROBLEMS IN EXPORT SALES MANAGEMENT GRAPHIC CHART SHOWING CO-ORDINATED EXPORT SHIPPING SHIPPER OF THE EXPOfiT St J-TTT •ICRCHANOISE ^ FORM 23. Kingsley Company — Forwarder's Functions DELIVERY OF EXPORT ORDERS 575 Problem 148 Hartman Rubber Company — Shipping Instructions In shipping rubber shoes to Europe, South America, and the Far East, the Hartman Rubber Company has employed the services of several freight forwarders. Frequently one forwarder specializes in Latin-American trade, another in shipments to China, and still another in handling goods destined for Europe. In a few in- stances customers, who have had satisfactory relations in the past with a particular forwarding or commission house or are friendly with members of the firm, ask that their orders be handled through a specified agency. As a result the Hartman Company has not confined its busi- ness to one house, but has dealt with a number of dif- ferent freight forwarders. During the war a number of freight forwarding agencies grew up in New York and other parts of the United States. Some of these agencies were run by capable and efficient men who had had years of ex- perience in foreign trade, but others were operated by men with only a smattering of foreign trade knowledge who hastened to take advantage of the profits to be made by handling American exports during the boom period brought about by the war. This latter class of agencies, frequently rendering careless and inefficient service, was one of the causes of the poor reputation attributed to American exporters. Although a number of these firms have since gone out of business, the Hartman Rubber Company was not without its share of experiences with them. Because the services rendered by different firms vary, misunderstandings have sometimes arisen and the com- pany's relations with forwarding houses have not been entirely satisfactory. In some instances the amount of extra service charged for almost doubled the estimated cost. Customers have occasionally complained that in transmitting their shipping instructions through a third party their orders have become confused, with the re- 576 PROBLEMS IN EXPORT SALES MANAGEMENT SHIPPING INSTRUCTIONS. .192- Dcar Sir Please note following instructions for shipment sent to your care to be forwarded. Make B/L in name of ^ _^ . as shippers r~ . (Order of Consign to jj^-^^^j ' ■ " Address of Consignee or party to be notified Destination of goods _ DO NOT FAIL TO ADVISE IF PACKAGES ARE ADDRESSED IN FULL. OR HOW MARKED MARKS AND NOS PACKAGES MCRCHANDISC ^(Necessary foi Customs Clearance)- Insure against Marine risk for $_ Insure against War risk for $ _ and send certificate to . Freight to New York to be charged to Lighterage \ ^j^^ -^ ^^^^ ^^ ^e charged to_ Cartage ) .G. O. C No, Your services to be charged to_ Insurance to be charged to Consular Fees to be charged to Ocean Freight to be charged to_ Send Original -Declaration No.. -Shipment No. -Copies B/L to Shipper, and- -Original- -Copies to Consignee and/or Shipped hence per„ -Original to_ -Railroad in Car No.- Collect for our account— Invoice attached COD $' Remarks C. O. D. Collection Charges Payable ^^j^^^^- Yours truly- FORM 24. Hartman Rubber Company — Instructions to For- warders DELIVERY OF EXPORT ORDERS 677 suit that they have not been carried out as agreed An investigation has shown that although tlie company has not been responsible for the majority of the mistakes, at least some ot these errors have been due to vague letters ot instruction being sent to the forwarding firm To prevent a recurrence of mistakes of this nature the Hartman Company has decided to adopt a standard form letter to cover all possible instructions to its forwarders ho'.'iT ^" ^'T ^^^ "f ^ ^'^^ " ^'^''^' ^"^^^§'1^^ forwarding house during the war has been selected as a basis for the firm s new letter, but it has not been decided what modifications should be made to meet the company's needs under present conditions ^ ^ 578 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 149 The Noonan Export Company — Avoiding Mistakes in Orders AND Contracts Because of a falling off in export shipments the Noonan Export Company has been forced to contract its organization with great rapidity and, although the home office in New York has been carefully reorganized to include an inspection system to prevent clerical errors, mistakes of a serious nature continue to happen. This is partially due to the fact that previously the company had enough business to have one man responsible for all the Australian orders, another all the South American orders, and so on, but with the decreased amount of business and the reduction of the force, one man must now be responsible for orders to several countries. The following examples are more or less typical of the type of errors that have occurred. A dealer in Peru had been promised that liis shipment of lubricating oil would arrive the latter part of Febru- ary. Not w^anting to have a large stock of oil on hand, and lacking the facilities for storing it for any length of time, this dealer had visited a number of mining camps and sold his oil '*to arrive." Through an oversight the shipment failed to make the boat, and when the oil did arrive the dealer refused to accept it, saying that, in order to satisfy his customers it had been necessary for him to buy elsewhere in the meantime. An India house ordered a shipment of white oil, speci- fying that it must be odorless and colorless and stating that it was to be used in making hair oil. The Noonan Company bought oil of the specified grade direct from its American manufacturer. The oil w^as shipped, ac- cepted, and paid for. A few months later the order was repeated for the same amount but the Noonan Cornpany, unable to secure oil of the proper grade, cabled its repre- sentative in India asking if oil of a slightly higher DELIVERY OF EXPORT ORDERS 579 specific gravity would be satisfactory. The customer in India cabled that this oil would be satisfactory, but later, when the shipment arrived on a falling market, the mer- chant refused to accept the oil claiming that it was not odorless and colorless, and was entirely unsatisfactory for use in food products. Since the second order had not been bought on the terms of odorless and colorless there was a misunderstanding between the company and its customer as to the specifications. Since there was no notice to the contrary the company had assumed that this lot was also to be used in the preparation of hair oil. Had the company taken the trouble to have the order and its specifications verified, this difficulty might have been avoided. In shipping its goods c. i. f. the Noonan Company usually secures a blanket insurance policy for a large number of shipments. When a shipment is to be made the firm informs the insurance company that it wall apply against this policy, and a certificate is accordingly made out by the latter showing that this lot of goods has been insured. The company has found that covering its ship- ment with blanket insurance is more prompt, frequently saves trouble, and is sometimes cheaper. A large ship- ment of high-grade machine oil which was recently sent to Australia arrived on a falling market and was rejected by the customer because the company had not taken out an insurance policy when the documents called for a c. i. f. sale. The English courts had held that in order to fulfill the requirements of a c. i. f. sale a certificate on a blanket insurance policy was not enough, and that an individual insurance poHcy must be made out. It has been suggested that all foreign orders should pass through the hands of an inspector to mark wdth a red pencil any particular point that should be noted in handling the shipment. This man must be an expert, versed in the latest custom requirements and laws of the different countries. Since a large part of the orders are 580 PROBLEMS IN EXPORT SALES MANAGEMENT merely routine, it would be necessary for him to pay particular attention only to the exceptional cases, which he should have sufficient time to do. What step should the Noonan Export Company take to avoid similar mistakes in the handling of its foreign orders ? Problem 150 Fales Tire Patch Company — Filling Foreign Orders The Fales Tire Patch Company is a small manufactur- ing firm located in a town a short distance from Kansas City, Missouri. It was started originally to manufac- ture bicycle tire patches and rubber cement for repairing small punctures, but as the automobile industry devel- oped the company began making patches for automobile and motor cycle tires. Locally the Fales Company has a reputation for producing a high quality product, but its tire patches are not sold to any great extent outside of a 100-mile radius of Kansas City. Within the past year the sales of the Fales Tire Patch Company have fallen off because of poor business con- ditions in the local territory and the increased competi- tion of large manufacturers. Several months ago the company began losing money and most of its working force was laid off. During this period, when the com- pany was having difficulty in meeting its current obliga- tions, Mr. Fales had a call from an old friend who was selling foreign advertising. This friend stated that the only hope of American manufacturers today was to increase the size of tlieii' markets by entering foreign trade and that in securing foreign orders advertising was the quickest and most important means. He cited several examples of large companies who had made sub- stantial profits in this field. Partly because he hoped DELIVERY OF EXPORT ORDERS 681 that foreign advertising might be a solution of his diffi- culty, and partly because he saw no other way of get- ting rid of his friend, Mr. Fales took a small amount of advertising space in several foreign magazines. After placing this advertising Mr. Fales promptly for- got the transaction until some three or four months later, when he began to receive a few scattered orders from Trujillo, Honduras; Champerico, Guatemala; Pun- tarenas, Costa Rica; Barranquilla, Colombia. A few weeks later further orders came in from a company in Sumatra and from Surabaya, Java, and several other foreign cities. Mr. Fales had never heard of most of these places and since many of the orders and inquiries were written in Spanish, Dutch, or some other foreign language, he was at a loss as to what he should do. He finally consulted his local banker, who was equally at sea. AVhen asked for a loan to carry on this foreign busi- ness, the latter said that he was perfectly willing to loan money on good farming land or for the building up of sound business in the United States, but he did not care to get mixed up with any foreigners. The banker advised Mr. Fales to forget these foreign orders and concentrate his efforts on winning back his hold on the local market. The company, however, is in need of orders to liqui- date its stock and meet expenses, and Mr. Fales wants to be progressive and extend his business. The main diffi- culty is that he has had no experience in foreign trade and he is therefore uncertain as to the steps to be taken in filling these foreign orders. In fact he is somewhat inclined to think that on the whole it might be better to stay out of the foreign field entirely. 582 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 151 Page Export Corporation — Establishment of New York Warehouse A number of complaints on delayed shipments have been received by the Page Export Corporation. This company exports on a commission basis valves, pipe fittings, threading tools, packing and other steam spe- cialties manufactured by five different companies in the United States. Orders that are received by the Page company's salesmen are turned over to the manufac- turers who look up the credit rating of the customers, bill and ship the goods, and make collections. Often these factories do not have merchandise on hand when the order is received, or they give priority to domestic shipments. As a result foreign orders are delayed and the promises of the salesman of the export company do not materialize. The Page Company has taken up this matter of service with the manufacturers, but no marked improvement has followed and complaints continue to be made. In highly competitive fields, particularly in Europe and South America, this inferior service has been sufficient to cause the customers to give their orders to other firms. The Page Corporation is, therefore, considering the advisa- bility of establishing a warehouse in New York City to carry the most active lines of merchandise and to take care of billing and shipping the goods, so that better service can be rendered foreign customers. The cost of warehousing merchandise in New York would be almost twice what it would be at the factory and the manufacturers would be required to stand this additional expense. Tt is probable that they would agree to such a step, since this ex))ense would be offset to a considerable extent by a saving in transportation charges thi'ougli carload shipments from the factories to the warehouse. Also, there would be considerable sav- ing by concentrating shipments going abroad, since less than ton lots c&nnot be shipped profitably. As all prices DELIVERY OF EXPORT ORDERS 583 are quoted f. o. b. steamer at New York, both the man- ufacturer and the customer would share in this saving. With a warehouse in New York handling the most active lines of merchandise, goods in general demand would be actually in stock and conveniently located ^vith respect to steamship company docks. Stocks in the indi- vidual factories might be allowed to run out through fail- ure to appreciate the importance of filling foreign orders promptly, but in the warehouse of the Page Export Cor- poration a balance of stores system would be kept so that an adequate amount of stock would be on hand to meet normal demands. The prompt shipments which would result through the establishment of such a ware- house would lessen the number of complaints received from customers and would enable the firm to compete with foreign manufacturers on a service as well as a price basis. It is contemplated that the rate of commission would remain the same, since it is doubtful if the manufacturers would agree to an increase. The export corporation must, therefore, carry on the billing and shipping work now being done by the individual manufacturers and since it fills the orders, it must also pass on the ques- tion of credit and the handling of collections. To do this it would be necessary to have the manufacturers agree on a uniform credit and collection policy. This additional amount of work which would be assumed by the Page Company would cut its present profits almost in half, but by establishing a warehouse it is hoped that exports will be at least doubled through more efficient service. Should the Page Export Corporation establish a ware- house in New York? 584 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 152 Ellwood Company — Bargaining for Ocean Freight and Insurance* Steamship companies do not maintain the same freight rates at all times. When there is more trade than there are bottoms to carry it, the established market rate gov- erns in almost every case. Wlien the cargo space is greater than the amount of freight to be sent the com- panies frequently cut rates in order to secure the busi- ness. An exporting firm, therefore, is sometimes in a position to bargain for freight rates and a number of these concerns shop around among the transportation companies before assigning a shipment. The shipments of wall board of the Ellwood Company are not large, although it has customers in many sections of South America and ships also to the AVest Indies, Mexico, and Australia. Since the Ellwood Company sells wall board f. o. b. New York, it must place a shipment aboard the steamer at New York, the traffic manager assigning each shipment to a particular ship. Salesmen report that customers are principally concerned with se- curing prom.pt deliveries and having their shipments sent at the lowest possible freight rates. In the past, when the company has had a large ship- ment to send to a distant point, it has shopped among the steamship companies by telegram. For example, a short time ago when it had three carloads of wall board to be sent to Australia it was able to secure a reduction in freight rates of almost $1,500. This instance is extreme, but the company has found that if it will guarantee freight one month in advance to go on a certain vessel, * There are innumerable references to be given on ocean shipping, many of Avliich deal in one way or another with the subject of ocean freight rates; see De Haas, Forpign Trade and Shipping, Part 11, Chaps. I & II; Hougli, Ocean Traffic and Trade ; MacElwee & Taylor, Wharf Management and Stevedoring ; Johnson, Ocean and Inland Water Transportation ; Hueb- ner. Ocean Steamship Traffic Management ; Hooper and Graham, Import and Export Trade; Winter, Marvne Insurance ; Its Principles and Practice, Chaps. 3 and 4; Dudeney, The Exporter's Handbook and Glossary, Chaps. XXXI-XXXIII; Guaranty Trust Company, N. Y. C, Shipping's Share in Foreign Trade; Fundamentals of Ocean Transportation, DELIVERY OF EXPORT ORDERS 585 agreeing to pay for the space whether used or not, a sav- ing of $100 to $200 on carload lots to Australia can be made. When the traffic manager goes to New York to arrange for large shipments he calls on steamship companies with the following statement: "We have two carloads of goods of such and such weight and dimensions. We have made our customers a particularly low price in order to secure the order and we are not in position to pay the prevailing rate. We guarantee to have this freight on the dock ready for shipment three weeks from today. The lowest rate offered by any steamship company gets the business. What price can you make?" Customers appreciate such a saving and it is proposed to establish an agent in New York who will bargain with the steamship companies for each shipment. Salesmen say that such an arrangement would be a help in selling merchandise, since they could inform the customer that their company had an agent in New York who would se- cure the lowest freight rates and would assure them of prompt delivery. Bargaining with the steamship companies is somewhat analogous to the conditions that formerly existed among the railroads when uniform rates were not maintained and rebates were frequently given. Furthermore, al- though the company might save a customer $200 or $300 on a freight bill in one instance, it might not be so for- tunate in the future when the amount of freight exceeded the cargo space. If the salesman explained to a customer that the company was looking after his interests and would secure the lowest rates obtainable, a customer might become dissatisfied if low rates were not forth- coming and in the future would do business with competi- tors. Should the Ellwood Company establish a policy of bar- gaining for freight rates for its customers? The proposal has been made to locate a representative of the company permanently in New York, whose duties would be to negotiate for freight as well as for marine 686 PROBLEMS IN EXPORT SALES MANAGEMENT insurance.* While marine insurance rates do not fluc- tuate within so wide range as freight rates, there is some- times the possibiHty of consulting the various insurance brokers and insurance companies and getting rates which might result in savings. Problem 153 Diamond Alkali Export Corporation b. Fl. Bourgeois — Bills of Lading and Insurance Certificates** The ruling of Justice McGardie, of the Kings Bench Division, London, in the case of the Diamond Alkali Export Corporation vs. Bourgeois, July 1, 1921, is of great importance to American shippers and has aroused considerable comment. The text of the judgment, which is published in Law Reports, 1921, 3 Kings Bench Division, pages 443 to 458, is substantially as given below : By a written contract of August 7, 1920, the Diamond Alkali Export Corporation of New York sold to F. Bour- geois, of London, 50 tons of soda ash. Shipment was to be September-October from American seaboard. Terms of payment were cash against documents under confirmed bankers credit at London. Price was c. i. f. Goteborg, The contract contained (inter alia) this condition: ** Seller not liable for failures or delays in delivery due to strikes, lockouts, fire, accident, embargoes, stoppage of navigation, lack of transportation, war restrictions or seizures by any governmental agency or any contin- gencies whatever beyond seller's control. In case any deliveries are delayed owing to any such contingency, the delayed shipments shall be made as soon as possible after such contingency has been removed or such ship- ments may be cancelled at seller's option. Date of Bill of Lading is to be considered date of shipment." The buyers rejected the documents when tendered in London upon several grounds, namely, (1) That the sellers had not shipped the goods until November 8 and 9, 1920. •See note on Problem 152 for references as to marine insurance, **S€C pages &29 through 646, Addenda M, DELIVERY OF EXPORT ORDERS 587 (2) That a pro])ei' Bill of Lading was not presented. (3) That a proper policy of insurance was not pre- sented Upon the whole I think that the effect of the clause was to enable the seller (if facts within the strike clause prevented shipment in September-October) to ship at a later date Here an express clause of the bargain enables the sellers as a matter of right to ship at a later date than that expressed in the earlier part of the contract of sale. I therefore find in favor of the sellers on the first objection of the buyers. It thus becomes my duty to consider the serious and powerfully argued contention of the buyers that the doc- uments tendered did not conform to the contract. I will deal with these documents separately. I take the first what I will call for convenience the Bill of Lading. That document was issued by the Swedish American Mexico Line Limited of Goteborg, Sweden. It is dated November 8, 1920. It contains many clauses. The arguments before me turned on the earlier words of the Bill of Lading, and those only I set out. They are these: "Received in apparent good order and condition from D. A. Horan to be transported by the S. S. Anglia now lying in the port of Philadelphia and bound for Goteborg, Sweden, wdth liberty to call at any port or ports in or out of the cus- tomary route or failing shipment by said steamer in and upon a following steamer, 280 bags Denze Soda. Perhaps I should add that the first of the many clauses in the Bill of Lading is this : "It is mutually agreed that this shipment is subject to all the terms and provisions of and all the exemptions from liability contained in the Act of Congress of the United States approved on the 13th day of February, 1893 and entitled "An Act for the navigation of vessels. " This Act of 1893 provides by Section 4 That it shall be the duty of the owner or own- ers, master or masters, or agent of any vessel transport- ing merchandise or property from or between ports of the United States and foreign ports to issue to shippers of any lawful merchandise a bill of lading or shipping doc- ument stating amongst other things, the marks necessary for identification, number of packages or quantity, stat- 588 PROBLEMS IN EXPORT SALES MANAGEMENT iiig wlietlior it be the carrier's or shipper's weighty and apparent order or condition of such merchandise or property delivered to and received by the oAvner master or agent of the vessel for transportation, and such docu- ment shall be prima facie evidence of the receipt of the merchandise therein described." I call attention to the words * ' Bill of Lading or shipping document. ' ' The Act recognizes that there may be shipping documents fulfilling the requirements of the section and yet not bills of lading. Now the buyers strongly contend that the document here tendered was not a Bill of Lading at all, and that in any event it was not such a bill of lading as was required by the contract. They call attention to the fact that the document does not acknowledge the goods to have been actually placed on board. It merely says that the goods have been received "to be transported by the S. S. **Anglia." They further call attention to the words "or failing shipment by said steamer in and upon a follow- ing steamer." I need scarcely say that I appreciate the vital nature of the buyer's contention inasmuch as the form of document now before me is of frequent use at American ports. In order to test the matter it is nec- essary in the first place to consider the rights of a buyer under a c. i. f. contract. The strike clause here is a mere accident, and does not seem to affect the point at issue. For inasmuch as the duty of the vendors was to ship as soon as the contingency ceased to operate and inasmuch as they were able to ship on November 8th, and 9th, 1920, it follows that the time of shipment under the contract was that date. What then are a seller's duties and buyer's rights un- der a c. i, f. contract? They were stated by Lord Black- burn in Ireland S Livingstone, (1872), 5 Appeal (Jases, page 395, at page 406 where he refers to a "bill of lad- ing." So, too, in the well-known judgment of Mr. Jus- tice Hamilton in Bidell's case, 1911, 1, King's Bench page 214, at page 221 where he says, "It follows that against tender of those documents, the bill of lading, invoice and DELIVERY OF EXPORT ORDERS 589 policy of insurance which completes delivery in accord- ance with that agreement the buyer must be ready and willing to pay the price." So per Lord Justice Kennedy, same volume at page 956, "How is such a tender to be made of goods afloat under a c. i. f. contract? By tender of the Bill of Lading accompanied in case the goods have been lost in transit by the policy of insurance. The Bill of Lading in law and fact represents the goods." See also Mr. Justice Scrutton in Landauer v. Craven 1912, 2, King's Bench, 94, at page 107, The latest state- ment is the opinion of Lord Birdenhead in Johnson v. Taylor Bros. S Co. 1920, Appeal Cases at page 149 where he says in speaking of the duties of a vender under a c. i. f. contract, "He is bound in the second place to tender to the purchaser within a reasonable time after shipment the shipping documents, for example the bill of lading and a policy of insurance reasonably covering the "value of the goods." I should mention also the notes to Scrut- ton & Mackinnon on Charter parties, article 59. If then a vender under an ordinary c. i. f . contract is bound to tender a bill of lading, the question next arising is: What is meant by a bill of lading within such a con- tract? The contract decides the rights of the buyer. The question I feel is not as to the meaning of the phrase in a particular Act of Parliament or as to the possible meaning under other forms of contract. Nor is it mate- rial that a buyer objects to the document for ulterior mo- tives. See for example Lord Cairns in Boives v. Shand (1877) 2, Appeal Cases, 455, page 465, and per Lord Hatherley, same volume at page 476. A buyer, as those noble lords pointed out, is entitled to insist on the letter of his rights. As Lord Hatherley said "You must bring the buyer mthin the four corners of the contract." A buyer moreover may have obvious business reasons for so insisting as he may have to implement his owti bar- gain with rigorous subvendees. Now I consider that the phrase "bill of lading" as used with respect to a c. i. f. contract means a bill of lading in the sense established 590 PROBLEMS IN EXPORT SALES MANAGEMENT by a long line of legal decision. Unless this meaning be given the matter is thrown into confusion. In article 3 of Scrutton & Mackinnon on Charter Par- ties and Bills of Lading is a definition which says: **a bill of lading is a receipt of goods shipped on board a ship signed by the person who contracts to carry them or his agent and stating the terms on which the goods were delivered to and received by the ship." This state- ment suggests at once an obvious and serious distinc- tion between a receipt for goods actually shipped on board a particular ship and a receipt for goods which are at some future time to be shipped on board either a par- ticular ship or an unnamed ship to follow her. This business distinction and varying results of the two seem to me to be plain. The legal distinction seems to me to be equally plain. From the earliest times a bill of lading was a docu- ment which acknowledged actual shipment on board a particular ship. In Bennett's History of the Bill of Lading (Cambridge Press, 1914) at page 8 is this pas- sage: ''Desjardins says that towards the close of the 16th century the use of the Bill of Lading was wide- spread— he quotes a definition from Le Guidon de la mer, a document of that epoch, which defines the Bill of Lad- ing as the acknowledgment which the master makes of the number and quality of the goods loaded on Board, See Desjardins' Traite de Droit Commercial Maritime, Tome 4, Article 904 (Paris 1885). It is clear I may add that the Bill of Lading sprang from the ship's book of lading which was a document of recognized importance showing the goods actually put on board. The famous case of Lickharroiu v. Mason, 2, Term Re- ports, at page 674, was discussed (1794). It decided that bills of lading were transferable by the custom of mer- chants. The finding of the jury as to the custom is set out at page 684 as follows: It begins "By the custom of merchants bills of lading expressing goods or mer- chandise to have been shipped by any person or persons to be delivered to order or assigns have been and are at DELIVERY OF EXPORT ORDERS 591 any time after such goods have been or are shipped nego- tiable or transferable by the shipper or shippers of such goods " etc. The word negotiable in that spe- cial verdict really means no more than the word 'trans- ferable" or "assignable." See Scrutton on Charter Parties notes, article 56. I am not aware of any decision which has modified the finding of the jury in Lickbarrow v. Mason as to the subject matter to which alone the custom of transfer- ability applied. Apparently that custom and that cus- tom only was operative when the Bills of Lading Act, 1855, was passed. (18 & 19 Vict. c. 111). Now that act expressly recites the custom found in Lickbarrow v. Mason, and then proceeds, "and Whereas it frequently happens that the goods in respect of which bills of lading purport to be signed have not been laden on board. ' ' It thus seems plain that the Act was referring to docu- ments acknowledging an actual shipment on board a specified ship. I need not refer to sections 1 and 2 of the Act. But section 3 says, "Every bill of lading in the hands of a consignee or endorsee for valuable con- sideration representing goods to have been shipped on board a vessel shall be conclusive evidence of such ship- ment as against the master or other persons signing the same " etc. It seems that no assignee can invoke the benefits for example of section 3 unless the document actually asserts the goods have been shipped on board. The whole point of the section seems to go if the document does not contain such an assertion. I will refer to this Act later. Now in Blackburn on Sale, 3rd edition (1909), page 421, is this statement: "A bill of lading is a writing signed on behalf of the owner of the ship in which goods are embarked acknowledging the receipt of the goods and undertaking to deliver them at the end of the voyage (subject to such conditions as may be mentioned in the bill of lading). The common type of a bill of lading is given in Carver on Carriage by Sea, 6th Edition, part 54. It is worthv of observation that in the U. S. A. case r)92 PROBLEMS IN EXPORT SALES MANAGEMENT of Roivley v. Bigeloiv (1882) 12, Pick, 307, Chief Justice Shaw said: ''The bill of lading acknowledges the goods to be on board and regularly the goods ought to be on board before the bill of lading is signed." See the note in Parson on Shipping (Boston) Vol. 1 page 187, where the learned author somewhat pointedly says : '*It is a fraud on the part of the Master to sign the bills before the goods are on board." In Benjamin on sale, 6th Edition, page 846, is this passage giving the result of the cases. "When delivery is to be made by a bill of lading the rule is that the seller makes a good de- livery if he forward to the buyer, as soon as he rea- sonably can, after the shipment a bill of lading where- under,the buyer can obtain delivery, duly indorsed, ef- fectual to pass the property or the goods, made out in terms consistent with the contract of sale, and purport- ing to represent goods in accordance Avith the contract and which are in fact in accordance therewith." Apart from any authority to the contrary it seems to me that I must hold that the document here is not a bill of lading within the c. i. f. contract before me. It does not ac- knowledge the goods to be on board a specific ship nor does it acknowledge a shipment on board at all. It leaves it uncertain as to whether the goods mil come by the ''Anglia or some following ship. The word "following" is loose and ambiguous in itself. The document does not even say "immediately following" nor does it indi- cate that the following ship will belong to or be under the control of the person who issues the bill of lading. The document seems to me to be (in substance) a mere receipt for goods which at some future time and by some uncertain vessel are to be shipped. It is not even in the form of the New York Produce Exchange bill of lading set out in Carver, 6th Edition, app. A., page 971. The buyer is left in doubt as to actual shipment and actual ship. The sellers, however, submit that I am bound by the opinion of the Privy Council in "The Marlborough Hill v. Coivan S Sons" 1921, I. A. C. 444. The buyers on the other hand contend that that opinion is DELIVERY OF EXPORT ORDERS 593 erroneous and that 1 ought not to follow it. I need not scarcely state the deep diffidence and embarrassment I feel in discussing that weighty opinion. As Lord Philli- more himself, however, pointed out in Dulieiv v. White, 1901, 2, King's Bench, 669, at page 683, a Privy Council advice is not binding on the King's Bench Division even as to the "res decisa." I wish to point out first that the actual decision in that case was merely that the bill of lading there in question (which closely resembles the one now before me) fell within section 6 of the Admiralty Court Act, 1865. It may be that the phrase "Bill of lading" in that section permits of a broad interpreta- tion. I point out next that there is no express statement in the Marlborough Hill case, that the document there in question actually fell within the Bills of Lading Act, 1855. In the third place it seems to me to be clear that the Board did not consider the nature and effect of an ordinary c. i. f . contract of the decisions thereon in rela- tion to the question before them. The case of Bowes v. Shand, 1877, 2, Appeal Cases, 455, was not even cited to the Board. Lord Phillimore in reading the advice of the Privy Council, said (page 451) "There can be no differ- ence in principle between the owner master, or agent acknowledging that he has received goods on his wharf or allotted portion of quay or his storehouse awaiting shipment and his acknowledging that the goods have been actuallj^ put over the ship's rail." With the deep- est respect I venture to think that there is a great differ- ence between the two, both from a legal and business point of view. Those differences seem to me clear. I need not state them. If the view of the Privy Council is carried to its logical conclusion, a mere receipt for goods at a dock warehouse for shipment might well be called a bill of lading. At page 452 of the Report the Board saj's: "Then as regards the obligation to carry either by the named ship or by some other vessel, it is a contract w^hich both parties may well find it convenient to enter into and accept. The liberty to tranship is an- cient and well established, and does not derogate from 594 PROBLEMS IN EXPORT SALES MANAGEMENT the nature of a bill of lading and if the contract begin when the goods are received on the wharf, substitution does not differ in principle from trans-shipment." I do not pause to analyze these words. I only say that in my own humble view substitution and the right of trans- shipment are distinct things, and rest on different prin- ciples. The passage last cited can, I think, have no apphcation at all to a c. i. f. contract which provides for a specific date of shipment. It will suffice if I say two things. First, that in my view the Marlborough Hill case does not apply to a c. i. f. contract such as that now before me. Secondly, that grounds for chal- lenging the dicta of the Privy Council will be found in Article 22, and the notes and cases there cited, in Scrut- ton & MacKinnon, 10th Edition, as to what are called through bills of lading, in the lucid article in the Law Quarterly Review of October, 1889, Vol. 5, page 424, by Mr. Bateson, K. C. ; and of July, 1890, Vol. 6, page 289, by the late Mr. Carver, and in Carver on Carriage, notes to Article 107. I do not doubt that the document before me is a ''shipping document" within the U. S. A. Harter Act, 1893. I feel bound to hold, however, that it is not a bill of lading within the c. i. f . contract of sale made be- tween the present parties. I now consider the second document discussed before me. The buyers contend that the ''Certificate of Insur- ance" tendered hj the sellers was not a policy of insur- ance within the c. i. f. contract. It is headed "Certificate of Insurance." It is No. 767,922. It is issued by the Fireman's Fund Insurance Company of San Francisco, a well known office. The substantive words are these: "This is to certify that on the 8tli of November, 1920, this Company insured under Policy No. 2,319, for D. A. Horan, $5,790, on 280 bags, 58 per cent dense soda ash N. Y. & L. test, valued at sum insured shipped on board of the S. S. Anglia and or other steamer or steamers at and from Philadelphia to Goteborg. And it is hereby understood and agreed that in case of loss, such loss is payable to the order of the assured on surrender of this Certificate. DELIVERY OF EXPORT ORDERS 595 ''This certificate represents and takes the place of the policy and conveys all the rights of the original policy holder (for the purpose of collecting any loss or claims) as fully as if the property was covered by a special policy direct to the holder of this certificate and free from any liability for unpaid premiums. Not valid un- less countersigned by A. A. Horan (Signed) F. H. and C. Robson, ]\Ianagers. Countersigned D. A. Horan." Notice: "To conform with the Revenue Laws of Great Britain in order to collect a claim undeF this certificate it must be stamped ^\^thin 1 0 days after its receipt in the United Kingdom." On the front of the certificate are certain conditions, of which the first is this: "This cer- tificate is subject to the full terras of the policy in re- spect of being free from claim in respect of capture, seizure, detention, or the consequences of hostilities." At the back of the certificate are other conditions which I need not detail. Is this certificate a proper policy of insurance within the c. i. f. contract here made? I have read, I believe, all the cases on the rights and obligations of buyer and seller under c. i. f . contracts from Ireland v. Livingstone in 1872, Appeal Cases, page 396 and Hickox V. Adam, 1876 Appeal Cases, page 344, to Johnson v. Taylor and others, 1920 Appeal Cases, page 144. Many decisions are cited in Benjamin on Sale, 6th Volume, page 850, and so on. In all the cases a "policy of insur- ance" is mentioned as an essential document. The law is settled and established and I may point out that in BurtJudl V. Grimsdale 1906, 11 Commercial Cases, page 280, it was expressly provided by the contract that a certificate of insurance might be an alternative for an actual policy. I ventured in Manbre Saccharine Co. v. Corn Products Com/pany, 1919, 1 King's Bench, page 198, to discuss the relevant authorities including the lucid judgment of Mr. Justice Atkin in Groom Ltd. v. Barber, 1915, 1 King's Bench, page 316 — a judgment which I have again most carefully read. It seems plain that a mere written statement by the sellers that they hold the buyers covered by insurance in respect of a 596 PROBLEMS IN EXPORT SALES MANAGEMENT specified policy of insurance, is not itself a policy of in- surance within a c. i. f. contract. See the Manbre case, 1919, 1 King's Bench, page 199. It seems plain also that a broker's cover note or an ordinary certificate of insurance are not adequate agreements within such a contract. See Mr. Justice Bailhache in Wilson Holgate & Co., 1920, 2 King's Bench Division. Does the present document fulfill the seller's contrac- tual duty? In the Wilson Ilolr/afe case, paragraph 7, Mr. Justice Dailhache said : * ' It must be borne in mind that in dealing with certificates of insurance I am not referring to American certificates of insurance which stand on a different footing and are equivalent to policies being accepted in this country as policies." It will be observed that Mr. Justice Bailhache used the word ''ac- cepted" and not the words ''bound to accept." The sellers here rely on that passage and also on the notes to Scrutton on Charter Parties, 10th Edition at page 185, where it is said: "A certificate of insurance issued by an insurance company under a floating policy upon which document the Company can be sued would suffice in any case." The buyer strongly challenges that view and his Counsel require me to express an independent opinion on the point. I do so mth the greatest diffidence and reluctance in view of the weight carried by even the dicta of such experienced and distinguished Judges as Mr. Justice Scrutton and Mr. Justice Bailhache. I feel bound to express my view not upon a question of busi- ness convenience but upon the strict law of the matter. I assume that this document (which is not stamped) was given under a floating policy issued by the Insurance Company to D. A. Horan. Now the certificate is not a policy. It does not purport to be a policy. This is conceded by Mr. Hastings in his able argument for the sellers. It is a certificate that a policy was issued to D. A. Horan, and it incorporates the terms of that policy. These terms I do not know nor is there anything before me to indicate that the buyers know them. The certifi- cate does not show whether that policy was in a recog- DELIVERY OF EXPORT ORDERS 597 nized or usual form or not. The certificate does there- fore contain all the terms of the insurance. Those terms have to be sought for in two documents, namely, the original policy and the certificate. But even if this document is not a policy yet the sellers say it is equiva- lent to a policy. In connection \\dth that phrase it is well to quote from another part of the judgment of Mr. Justice Bailhache in the Wilson Holgate Case, 1920, 2 King's Bench at page 9. He there says, ''He, the buj'er cannot be compelled to take a document which is some- thing Hke that which he has agreed to take. He is entitled to have a document of the very kind which he has agreed to take or at least one which does not differ from it in any material respect." This leads me to ask whether the document before me differs in any material respect from a policy of insurance. To begin with, I do not see how the buyer here could know whether the document he got was of a proper character (one he was bound to accept) unless he saw the original policy and examined its conditions, whether usual or otherwise. In the next place I feel that a certificate of insurance falls within a legal classifica- tion, if, any, different to that of a policy of insurance. The latter is a well known document with clearly defined features. It comes within definite, established and statu- tory legal rights. A certificate, however, is an ambiguous thmg; it is unclassified and undefined by law; it is not even mentioned in Arnould. No rules have been laid do^\^l upon it. Would the buyer sue upon the certificate or upon the original policy plus the certificate? If he sued simply on the certificate he could put in a part only of the con- tract, for the other terms of the contract,' namely, the conditions of the actual policy, would be contained in a document not in his control and to the possession of which he is not entitled. Thirdly, I point out that before the buyer could sue at all he would have to show that he was the assignee of the certificate. See Arnould, sec- tion 175-177. In what way can he become the assignee f 598 PROBLEMS IN EXPORT SALES MANAGEMENT It is vital to remember the provisions of the Marine In- surance Act, 1906. Now the relevant statutory provi- sion is Section 50 (3), which says: *' A marine policy may be assigned by endorsement thereon or in any other customary manner. ' ' This sub-section, however, only ap- plies so far as I can see to that which is an actual marine policy. Section 90, the interpretation clause, says: "In this act unless the context or subject matter otherwise requires 'policy' means a marine policy. The Act con- tains no reference express or implied, to a certificate of insurance. Section 22 says Subject to the provision of any Status a contract of marine insurance is inadmis- sible in evidence unless it is embodied in a marine policy in accordance with this Act." If, as is admitted, this document be a certificate only and not a policy it there- fore seems not even to be admissible in evidence before me. If the certificate does not fall within the Marine Insurance Act it appears to be only assignable by writ- ing in accordance with the provisions of the Judicature Act, 1873, Section 25 (6). The certificate may have less legal effect than n slip, as to which see Arnould para- graph 34 and Section 21 of the Marine Insurance Act. I mention these considerations briefly. Time does not permit to discuss them further or to develop their signifi- cance or to emphasize the points arising under Section 91 to 95 of the Stamps Act, 1891. In my view the Act of 1906 deals with marine policies only. It does not, I think, cover other documents, although they may be said to be the "business equivalent of policies. " I do not think that the Act of 1906 covers the document now before me. In my humble view a document of insurance is not a good tender in England under an ordinary c. i. f. con- tract unless it be an actual policy and unless it falls within the provisions of the Marine Insurance Act 1906 as *to assignment and otherwise. I must therefore hold that the buyers were entitled to reject the documents upon the ground that no proper bill of lading and no proper policy of insurance were tendered by the sellers in conformity with the c. i. f. contract. I abstain from DELIVERY OF EXPORT ORDERS 599 amplifying this judgment by the citation of other au- thority or the mention of further reasons in support of the conclusions I have deemed it my duty to state. It may well be that this decision is disturbing to business men. It is my duty, however, to state my view of the law without regard to mere questions of convenience. I desire to add four remarks: (1) That there is no finding or evidence before me of any course of dealing between the parties: (2) That there is no finding or evidence before me of any custom or general usage which modifies the long and clearly established legal rights of a buyer under a c. i. f. contract. If any such custom or usage be asserted then the point can be dealt with in some fu- ture action in the commercial Court. AVhether such an assertion can be proved ma.y well be a question of doubt in view of the matters appearing in the Manbre case, 1919, 1 King's Bench at page 206. See too the Wilson Holgate Case, 1920, 2 King's Bench at page 8, where Mr. Justice Bailhache said "I am not satisfied that since Ireland V. Livingstone was decided any custom has arisen which obviates the necessity for a tender by the seller of a policy of insurance if the buyer requires it." (3) It may well be that legislation is needed to enlarge the operation of the Bills of Lading Act, 1855, and the Marine Insurance Act 1906. (4) That the difficulties in- dicated in this judgment can be easily, promptly and ef- fectively met by the insertion of appropriate clauses in c. i. f. contracts. For the reasons given I find in favor of the buyers with the results stated in the Award. The sellers must pay the costs of the proceedings before me. Appeal dismissed. Solicitors for sellers: Cosmo Cran ^ Co. Solicitors for buyers: Swepstonc, Stone, Barler ^- Ellis. 600 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 154 The Starr Company — Collection of Insurance Claims The Starr Company manufactures a line of high-grade confectionery for which it has developed a very consid- erable market in foreign countries. However, consider- able difficulty has been experienced with respect to the collection of insurance claims by its customers. Although the concern has an open policy with a reputable insur- ance company, its customers have had difficulty in col- lecting claims for insurance and in some cases they have made reductions from invoice prices covering such claims. An investigation of a number of such cases showed that the customers' failure to collect damages was due partly to the fact that they had failed to have proper notation made on bill of lading when the goods were taken away and partly to the fact that they did not notify the proper authorities. In short, in the majority of cases uncollect- ible losses were the result of the failure of the foreign customer to take steps to place their claims properly. The export manager has, therefore, decided to make out a set of instructions for customers in recovering losses against which insurance has been provided. What should these instructions contain!* *See Addenda 3, pages 647 through 655. DELIVERY OF EXPORT ORDERS 601 Addenda 1 (see page 550) : *To give an idea of the operations to be performed and the documents to be prepared, the following extract is taken from a description of a typical transaction as illustrated in The New England Exporter by Harry R. Tosdal: The Documentation of an Expoet Orders The details of liandlins; an export order vary accord- ing to the commodity to he exported, the internal system of the concern, the terms of payment, and the destination of the goods, yet the general steps in an export trans- action are common to most transactions and may be summarized as follows: (1) The Inquiry from the Foreign Buyer. This may be an inquiry for quotation or for further information. There is no standard form. Such inquiries may be developed by circu- larization, samples, advertising, or visits of salesmen. (2) The Reply of the Manufacturer to the Inquiry, giv- ing description of the goods he wishes to sell with quotations, and developing selling points. In all correspondence with foreign prospects or buyers, care should be taken to make in- formation complete and detailed so as to avoid delay and cable expense. (3) The Order, which specifies the goods purchased and methods of payment and shipment. (4) Credit Inquiry and Replies, either to various credit agencies or to firms or banks to which the buyer has referred. (5) Invoicing and Billing so as to conform to requirements of foreign trade customs and laws. (6) Shipment of ;the goods, including delivery of goods to the dock, the issue of the bill of lading, and the provision for insurance against loss in transit. (7) The Financing, including the preparation of the draft, the letter of instructions, and the collection. These are the steps in transaction of business with a new account. If the order comes from a salesman sent out by the tirm, the first two steps are omitted, their place being taken by personal solicitation; likewise, the fourth step of credit inquiry and reply will sometimes ^The writer is indebted to Henry H. Morse, Chief of the Specialties Division, United States Department of Commerce, for the forms herewith presented. 602 PROBLEMS IN EXPORT SALES MANAGEMENT be omitted in the case of concerns with wliich trans- actions are carried on currently. The following pages trace a typical export transaction from the receipt of the order through the shipment of the goods. The Export Shoe Company received in Sep- tember 1921 an order from the Gonzales & Castillo Com- pany for 18 dozen pairs of shoes to be shipped October 15 ; payment was to be made 60 days after presentation of sight draft, documents to be surrendered upon ac- ceptance. The following' features will be noticed in the order : (1) The Usual Data — names of buyer and seller, shipping date, and statement of terms — common to both domestic and export orders. (2) The Data Necessaey to Determine Precisely the Goods to be Shipped — such as sample number, stock number, last (stock and style), top, tip, sole, and heel — with columns for prices and extensions and columns for quantities according to size. Careful specification is necessary in order to avoid delay ; it is not an easy matter to secure additional information, and consequently the order form shoukl be carefully drawn up. The number of columns and their headings will vary with the nature of the product. A company selling a single standardized product of one size and style is able to dispense wdth a large part of the data needed in the shoe order given. Order numbers and file numbers will, of course, vary with the billing system of the concern. (3) Credit Data. Since shoes are generally manufactured to order, the company provides space on its order form for two credit approvals — the first prior to production, and the second after production but prior to shipment. In a period of unset- tled economic conditions it may happen that, between the re- ceipt of the order and the shipment date, considerable change will take place in the credit standing of a particular concern. To avoid loss through failure to check up such changes, a second approval is considered advisable. In the present order as out- lined, the credit of Gonzales & Castillo is known through previ- ous dealings and the credit manager is willing to pass the order without question. If the order were received from a firm con- cerning which there was no satisfactory information on file, the Export Shoe Company would immediately upon receipt of the order secure data from one or all of the following sources: (a) the Boston banks with which it does business; (b) the DELIVERY OF EXPORT ORDERS 603 National Association of Manufacturers (application for credit information would be made to the credit office of the Associ- ation if the firm were a member) ; (c) mercantile agency (upon forms provided, requests would be sent to the mercantile agency office for a special report) ; (d) National Association of Credit Men (if the concern were a member of the Foreign Credit Interchange Bureau of the National Association of Credit Men, the request for information would be sent to the central bureau upon specially prepared blanks. The Bureau will forward the request to other members who have had business dealings with Gonzales & Castillo, names of such members being in the gen- eral file maintained in the Bureau) ; (e) firms to which refer- ence is made in connection with the order ; the National As- sociation of Credit Men has approved a special form for this purpose, having blanks for recording the essential data con- cerning credit experience of a particular firm; (f) other sources, such as tlie Philadelphia Commercial Museum. (4) The Manner in Which the Shoes Are to be Packed in THE Various Packing Cases thereby giving the number of pairs, the style and value of product in each packing-case. This is valuable for proof in case of insurance claims. (5) The Entries for the Factory Order Sheet Are in this Case Made Directly from the Order, no Copying Being Nec- essary'. Other firms may find it necessary to copy the order or modify the procedure to conform to the order-filling sj='stem in their concern. In order to fill and document the order correctly, more detailed instrnctions are given than are given on the order sheet. The special instructions shown in Form 25 on the next page are attached. Such instructions may also be placed upon the invoice, but it is evident that they will vary according to the firm, the market, and the type of commodity. The instruction given as to insurance indicates the common practice of insuring for 10% to 20% above the invoice value of the goods. If forwarders are to be employed, documents for which the manufacturer is responsible are the in- voice, the draft, and possibly the insurance policy. In this case, the order is to be handled by the manufacturer, deliveries to be made direct to the steamship company in Boston. Upon receipt of the order, a courteous letter is mailed to Gonzales & Castillo expressing pleasure at the re- 604 PROBLEMS IN EXPORT SALES MANAGEMENT SPECIAL INSTRUCTIONS APPLYING ON ATTACHED EXPORT ORDER. DATE OCT 15, 1921 REG I STER # 7744 AGEN T 355 E 0 RDER H 72 SHIPPED OCT 15, 1921. PACKIN G PACK IN WOODEN CASES, STRAPPED /JID SEALED. INSIDE or CASES BE LINED WITH WATER-PROOF PAPER 60 DAYS BILLING SIGffl" PRATT DOCUMENTS ATTACHED 10 COPIES OF I^A/OICE TRAFFIC DEPT STEAMSHIP B/L IN TRIPLICATE. 1 CONSULAR INVOICE— INSUHANCE CERTIFICATE IN DUPLICATE. INSURANCE — INSURE AGAINST ALL RISKS. ROUTING: INSURE FOR 20/= ABOVE THE INVOICE VALUE Via Forwarder: Via S. S. Line PASTOR FRUIT S.S. CO. Consigned: TO ORDER OF EXPORT SHOE CO. MARKING NOTIFY GONZALES & CASTILLO HAVANA CUBA EXPORT DEPARTMENT FORM 25. Detailed Special Instructions Form ceipt of the order. This letter gives an opportunity for introducing a personal touch and for building good-will, an opportunity which a good export manager will not overlook. Prior to October 14, 1921 the manufacturing depart- ment informs the export department that the shoes on the order of Gonzales & Castillo have been manufac- tured, while on that date the packing department informs the export department likewise that the shoes have been packed and await shipment. Meanwhile, it has been ascertained that the steamship Pablo sails on October 15 DELIVERY OF EXPORT ORDERS 605 for Havana and that the Pastor Fruit Company will accept the consignment of shoes. Accordingly, the pack- ing department has been instructed to order the goods sent to the dock of the Pastor Fruit Steamship Company, which issues upon their receipt the common form known as the dock receipt: DOCK RECEIPT THE PASTOR FRUIT COMPANY TRIPLICATE (FOR PIER) B««onMaBB, October 14. 1921. m arkiand numben- miltnoi*r, being as d«br n n> sniptXT anu a^i i^ dc .j^mea pin ot .ubscqucnl Meimet [ MARKS NUMBERS No of ; Ktnd o( ' 1 SHIPPER'S DECLARATION OF CONTENTS Packages i Packages Shipper-i 1 Sltimmc'i 1 Shipper'! Vahie 1 Meastiraineni 1 Weight To order of 1-3 3 Casee lien's Shoes 1384.54 cubic 675 Export Shoe company feet lbs Notify Gonzalea & Caetlllo Havana , Cu^a COP Y (NOT NEGOTIABLE) u*c by ll (or Mmilar shipments lupon ihr bow* of which (rci; iuucd (or said cood* to ihe above namt-d shiWKt The PaMo become rcHMnstble lot the coods a» carrier until ihc Roods are until such loadine il ihall be liable only lor ki^ or damage vcc *n ordinary bailee is liable (or. but -uh|ci:t alMi tu ihc cumlil tiont of liability and lalue conUincd m uid recular bill of lad ,»"o.l by .iWjuli. such in lender o( the E luf shipmcni and the value ol the sondt be dccUred on delivery at the be dock and tniertcd herein, (ailinjt which, the sood> shall be conclusively deemed receiveil nt subject to the bill ol lading limitation ol value and habihty to the invoice cost not eicccd ■r ing SlOO 00 per pickagc as Shippers* sveighls as ini^rted herein will be relied on in handhnjc the goods, and il J incorrect, shipper and or consignee shall be responsible lor any loss or damage tf camei NOTICE 1" Se« reverse side respecilng CARGO BOOK PAGE THE PASTOR FRUIT COMPANY *""■""*' "'" FORM 25. Dock Receipt 606 PROBLEMS IN EXPORT SALES MANAGEMENT The dock receipt is not to be confused with the bill of lading. It is merely evidence that the company has re- ceived the goods at the pier. The Export Shoe Company has at the same time sent to the steamship company the following letter with the documents mentioned, on the basis of which the bill of lading is to be issued: Oct. 14, 1921. The Pastor S. S. Company, Long Wharf, Boaton, Uaae. Attention Mr. BlacK EnoloBed please find six copies of invoice in Spanish and export declaration in duplicate covering shipment of three cases of ehoe« Nob. 1-3 consigned to you and Tarked;- To order of Export Shoe Company, Notify Gonzales & Castillo Havana Cuba. Please arrange to forward shipment prepaid coneigncfd to or- der of Export Shoe Company, notify Gonzales 4 Castillo, Havana, Cuba. Arrange for consulation of documents, clearance, etc., and send all nego- tiable documents to ub as quickly as possible. Also send us a copy of the bill-of -lading for our file together with your bill of charges in du- plicate, for which we will be pleased to remit promptly. We give packing list below: Caee No Weight Kilos . GrosB Net Groae Net prs. Measurements Markings 1 2 3 220 160 99.550 72.40 72 27* x 27* x 40* To order of 225 165 101.81 74.66 72 27i x 27* x 40* Export Shoe Cs . 230 170 104.07 76.92 72 27* x 27* x 40* Notify Gonzales 675 i^ 54 cubic feet & Castillo, Havana, Cuba, The value for customs clearance is $1364.50 and the shipment la insured under our open policy. Yours very truly, EXPORT SHOE COMPANY ^clAAJQ^' ^ OKvOCvv^ W.-62X-. ■Enc. M Traffic Manager FORM 27. Letter of Instructions Just as the United States requires exporters to the United States to prepare consular invoices without which goods will not be admitted, so many other countries re- DELIVERY OF EXPORT ORDERS 607 quire the preparation of consular invoices. The invoice mentioned in the letter on page 606 is the consular invoice form required for shipment to Cuba, the purpose of which is to secure for governmental authorities an authentic and sworn statement for use in computing and checking up invoice duties. The number of copies required varies ; in this particular case, six copies have been prepared. The form of the consular invoice is as follows : CUBAN CONSULAR INVOICE INVOICE of merchandise ihippcd hy PPORT SH08 CO BosTo:; :iASS destined to_ HAVASA CUBA J?epublica de Cuba_ and consigned to _ TO ORDER EXPORT SHOE CO NOTIFY OOMZAUS h CASTILLO 'JENS SHOFS OF LEATHER £16 PR TOTAL 60 PR 45 " 45 • 66 * 2l6 ■ COPIES NOT NEGOTIABLE 675 KILOS 360 00 292 50 270 00 4 62 00 1384 50 Declaro que soy el dc |aj mercancias relacionadaj en la presenle fjiclura f que son cicrtos Ids precioa y dcmas panicuUrei que en ella se consignan. y que lai mercancias conrenidai en dicha factura son produclos del sucio 6 de la induslria de lo$ Estados Unidos de America. a«„^,..,S.i^ THE MANUFACTURERS ECFORT SHOE 00 -"^^S^^"^^ft^?-^'^^^'--^ Declaro que toy el Agente autoriiado por qUe B« »uscmo la anieri para presentai esia (actura en la Oficina Consular de Cuba en esta plaza, 4 (in d* que sea certlficada FORM 28. Consular Invoice 608 PROBLEMS IN EXPORT SALES MANAGEMENT For the purpose of compiling statistics of export, the United States Government requires each shipper to pre- pare an export declaration in duplicate on forms sold by the Government at the rate of $2.50 per thousand. No vessel can be cleared, without export declarations cover- ing the entire cargo. The face of the export declaration contains the sworn statement as to the contents and value of the shipment; on the reverse are given the instructions for the preparation of the declaration : I - nil \M B\ WMinMKNr ^^^^ Un.l^d Sl.l«. Cu.tom. .nd W.r Tr.d. Butdi C..lon«C.I N. 7525. ri„.,„-«i..«R.jtw.,B. 1 ..,)cN,. D;u 1 .Purt t OF MERCHANDISE SHIPPED 10 FOREIGN COUNTRIES OR NONCONTIGUOUS IER»1I0«]ES OF THE U. S. Export Shoe Co. Address Boston, MaBB. ^ (....ii .!.,.„,, ^^^^ Boeton, llaeo. | v:, ""'"Freight "F»r SMprnpni on id.. ""sarPablo '"' '" * ""'"" From Boston. "liaBB. To llllin>»lf for|.i.rn .lr.!ln»lion HAVAKA, CUBA 1 ^i|^p- Jtn'Zi'V«'"~7 v'm^''' -^^^^^^ «•„, t™Jc "SiP V.,,.e.,„.,..„d pi... .,.„,„.... 1 ;SI?i: impofin) 1-3 MLUU 1384 50 3 CS ^CEN'S SHOES 216 PR 59 6 LBS MARKED TO ORDER EXPORT SHOE CO. GONZALES 4 CASTILLO Havana. Cul a "■"'""""■""""■' 1 mUly iImI .,l,.,^. .Icm„I,.,| c 1, „cri .li.|.|.pJ ... -lali-l l.ir,™ tooiH ;.s ullrcn.lw ukJ CXporlnlinn; I furllxr li-s.nl.rc> liMlcii on .inv or Iran^Miippcd on l>ic Ijigli sca« cxci-pl .is fully :.tiiu- n l>aiik or oIIht liro c. f.i.Cor. or at.cr.l. Ilml i^lh,- ,s;, , EXPOI ^a»»»yix^^IZ^i^^^~~^ 1 -V\^~li T^itiZ^-^^ . ,,p„... ■^Boston, Maes. "'""'' '"" 1 " l."U„-, .1. , , 1 ,,. FORM 29. Face of Export Declaration DELIVERY OF EXPORT ORDERS 609 INSTRUCTIONS. Pcetl carefully to avoid delay as shipping point. This fofm must be prepared in quadruplicate for all merchandise shipped to a forcigrj destination except sliipinfrits fn tnatit throuKh the United States from one foreign country to another and in duplicate for merchandise shipped between the United States and its nonconiieuous territory. When merchandise is shipped foreign, four copies oi this form m'lat be presented to the collector of customs for each consignment. The collector w^il retam the original and one copy and daliver the other two copies to the shipper. The shipper will present one copy to the steamship company and deliver the other copy with the goods to the inspector, of customs on the dock, without which no goods will be received. The copy dotivered to the steamship company must accompany the goods on their voyage and be delivered by the mas- ter to the American Consular officer with the manifest at the port of discharge. The copy delivered to the inspector o( customs upon whicn he will make Iiis notifications of short shipment, etc., .must be delivered to the vessel to be attached to the Eianifest dclivewd to the collector upon clearance. Export license number and date of expiration must appear immediately above goods shipped thereunder. The War Trade Board code number of the article given on the export license must be inserted after each commodity in the column following the description on the face of this form. If goods are to be delivered to other vessels in port or transshipped on the high seas, the articles, quantities and values, and name and address of person, corporation, vessel. Government, etc.. to whom transferred or delivered must be Etaled en this form. !. SHjpraents from the original export declar, States and its noncontigui exportation, if shipped c consigriee at the seaboard, (a) If the shipper prefers, he may place the original declaration, but not the addressed to the Collector of Customs with his name indorsed thereon and the faci deliver it with the extract to the carrier. If goods are consigned to an agent at i portaticn the shipper m»y mail the declaration and extract properly prepared dlr (6) Upon arrival of the goods at the port of exportation, the carrier must ir tions, sealed and unsealed, and the carrier's extracts to the Collector of Customs the extract and return it to the carrier, vessel, or parly named lo attend to exportation. 2. Exporting: vessel or carrier. — Care should be exercised in receiving goods destined for foreign tiguous territories not accompanied by certified' extracts or original declarations, as clearance will not be granted until the export deelaraiions have been filed with the Collector. The copy must be attached to the vessel's manifest or car manifest or copy of waybill when presented for clearance. 3. Before a, clearance shall be granted for any vessel bound to a foreign port, the owners shippers, or consignors of aniiests (or declarations) of the cargo or the parts thereof shipped Such manile&t (or declarations) shall specify the kinds quanti- country of destination, (See sec 4200. Rev. Stats.. U. S.) yoyage^without delivering manifest and obtaining clearance, the ch offense. (See sec. 4197, Rev. Stats., points for exportation.— If shipped on a through bill of lading, the shipper mu5t prepare n quadruphcatc for foreign shipments and in duplicate for shipments between the United 'er to accompany the shipping papers to the port of ay be attached thereto or mailed separately to the Tier's extract, in a sealed envelope ealing noted o eaboard for ti !iately deliver the original declarar the original and certify sh.pn nt and i U. S.) el shall deli% and shall ver ? articles and the foreign port i id to a foreign port departs on n in charge shall be liable to a penally of $500 for < before a d the shippe ■ provisions apply to exportations by rail, vchic ; shipper must prepare this export declaration shipn officer. ■ ferry. (See sign the four ^ppe: nil be 1, act March 3. 1893.) lies and the oath be taken on the original ust be Signed by the shipper, but the oath ihe declaration is executed by an agent for ,iic rtuiiLwiiiy 111U31 UL- 111 willing uii mis uci.i. D. C. and will be of much 14. Sale and printing of blanks.— Shippers export declarat: ice of 25 cents per block of 100. The export declarations rictly to the o^icial form in width, wording, color, and arrangement. sisiancc to expon IS may be obtained from Collectors of Customs at the ay be printed by private parties providing they confonu To the Collector: I hereby author! the exportatiOD of the witMn described goods. Please deliver the — . to act as my agent for customs purposei i tified duplicate accordingly. FORM 30. Reverse of Export Declaration Tlie consular invoice must be signed by the consul representing the country of destination, a fee being charged for the forms and certification. The certification 610 PROBLEMS IN EXPORT SALES MANAGEMENT is secured by the steamship company. With the export documents and certified consular invoice prepared, the Pastor Fruit Company makes out the bill of lading in the following form : THE PASTOR FRUIT COMPANY WITH CONT4ECTING CARRIERS OR OTHERWISE BILL OF LADING nfrriUrO QI boston. 6yt>M pastor TRUIT company (the tern earner twrciaalter used inl«ilin« said Ctmpany and/or mj utedcrcontinuiDg Carrier) trnm the shipper oame^i on the back herixjl, th<^ pacKages or articles mL-nlioDcd on the back hereof (hereinafter called the Goods), in nt good nrdM nod cond.uon; TO BE TRANSPORTED by the neamship ramed on the back hereof, or by said Sieamship and or ol\^ cooveyanet-, subject to substituUoo other liberties as hercinaftcf provided (the term Vessel hereinafter used intending said steamship and, or any substituted or continuing vessel or craft ut the inception equcnt stage of the entire service), direct or via ports or places, lo the destination of the Goods named on the buck hertof. or, if ihc final carrier be a water carrier, rtien r» lereloas the VLSsel can safely get; and at said destination of the goods to bedclivored incomplete or part lots, upon payment of any unpaid freight or any other eunu paysblv ipcr, ooou^ec and/or assifn^ to the Consignee named on back heicci or order if so provided, subject always, and duniig any deviation also, to iho TERMS OF THIS CONTRACT WHICH ARE HEREBY MUTUALLY AGREED UPON AS FOLLOWS: 1. The freight is adjusted in consideration of all the terms and pro- visions of this contract whether written, printed, pasted or stamped. 2. All particulars herein mentioned of the Goods, except only the num- ber of the packages with the marks thereon, are those declared by the shipper, and the same (including anything stated as to contents, size, weight, quantity, condition, value, or the like or implied by the character of packages designated) are unknown to the Carrier and shall not consti- tute as against the Carrier, any part of the Carrier 's description of the Goods as hereby received for, but shall be deemed only representations of the shipper. The Carrier may correct all errors in marks and numbers of the Goods in order to conform the same to the Bill of Lading or other documents. 3. The Goods, whether perishable or not, are accepted by the Carrier subject to delays or failure in shipment, transportation, delivery or other- wise, occasioned by war, rebellion, riots, strikes, stoppage of labor, lock- outs or labor troubles of Carrier's employees or others; shortage of labor, fuel, conveyance or room; lack of facilities of any sort; accumulation of cargo ; weather or any conditions unless shown due to Carrier 's negli- gence; and notice to shipper or others of any danger of such delay or failure is hereby waived ; and the Carrier shall not be responsible for any such delay or failure; and if loading of the Goods in the customary man- ner is delayed, or the Vessel is likely to be detained slie may procepd with- out loading or committing the loading of the Goods, 4. The Carrier's responsibility in respect to the Goods as a carrier shall not attach until the Goods are actually loaded for transportation upon the Vessel, and shall terminate, without notice, as soon as the Goods leave the Vessel's tackles at destination, or other place Avhere the Carrier is authorized to make delivery or end its responsibility. Any responsibility of the Carrier in respect of the Goods attaching prior to such loading or continuing after leaving the Vessel 's tackles as aforesaid, whether the Goods are in course of lighterage by the Carrier or however else the same may be situated, shall be the same only as that of a warehouseman, without liability on the part of the Carrier, except for want of ordinary care; and all conditions, exemptions, exceptions, and limitations of the liability of the Carrier contained in this coiitra.ct shall be deemed to apply also to such warehouseman's liability as well as to liability as a carrier. The Carrier may place the Goods in store while awaiting loading, trans- DELIVERY OF EXPORT ORDERS 611 shipment, forwarding or delivery and thereupon be discharged of all responsibility for loss of or damage to the Goods while so stored. 5. Full freight through to destination of the Goods, whether intended to be prepaid or collected at destination, and all advance charges against the Goods are due and payable to the Pastor Fruit Company upon receipt of the Goods by the latter; and the same and any further sums becoming payable to the Carrier hereunder and extra compensation, demurrage, for- warding charges, general average claims, and any payments made and liability incurred by the Carrier in respect of the Goods (not required hereunder to be borne by the Carrier) shall be deemed fully earned and due and payable irrevocably to the Carrier at any stage, before or after loadixig, of the entire service hereunder, without deduction (if unpaid) or refund in whole or in part (if paid), Goods or Vessel lost or not lost, or if the voyage be broken up, or in any circumstances whatsoever, and whether the voyage is begun or not; and shall be payable in United States currency or its equivalent ; and the Carrier shall have a lien on the ■ goods therefor (whether payable in advance or not and though noted hereon as prepaid) surviving delivery, and for the whole thereof on any part or proceeds of the Goods ; and the shipper, consignee and/or assigns shall be jointly and severally liable therefor, and notwithstanding any lien therefor has been surrendered. Full freight shall be payable on dam- aged and unsound Goods. The Carrier may collect freight on bill of lading weight, measurement or quantity, and, if gross weight, measurement or quantity delivered exceeds weight, measure or quantity on Avliich freight may be computed, the Carrier may collect freight on such excess, unless shown to have been caused by absorption of water during the transit. Any error in freight or other charges or in the classification herein of the Goods is subject to correction, and if on collection the freight or charges are higher, the Carrier may collect the additional amount. Should a pack- age consist of several parcels for more than one person, full freight shall be paid on the parcels for each person as if shipped and consigned as a separate package. If there be an enforced interruption or abandonment of the voyage at a port of distress or elsewhere and the Goods or any part be forwarded, the cost thereof, including extra compensation if per- formed by vessels in the service of the Carrier, shall be paid by shipper, consignee and/or assigns. 6. The shipper, consignee and/or assigns, shall pay, immediately and before delivery or forwarding, all entry or clearance fees, tolls, duties, taxes, imposts and fees upon account of the Goods, and, unless otherwise expressly provided herein, all discharge, landing, lighterage, wharfage, storage, dispatching, reshipping or transshipping charges or expenses on account of the Goods or which the Carrier or Vessel may pay, incur, advance or become responsible for, voluntarily or otherwise, in connection there- with at port or place of discharge, delivery or entry thereof ; and also any fine or penalty incurred by, or loss or expense occasioned to the Carrier by reason of illegal, incorrect or insufficient documents or marking or numbering of packages, or goods, or description of contents or weight or other particulars or by reason of any other act or omission of shipper, consignee and/or assigns; the Carrier to have a lien on the Goods therefor. 7 In case of a single article or package exceeding two tons in weight, the true weight thereof sliall be declared at time of delivery to the Car- rier. If the weight of any package is incorrectly given or no weight is declared of a package exceeding two tons, and in consequence of reliance theron any loss or damage arises, either to the article or package, or to the Carrier or to others, or if uny increased charges or expenses are incurred by the Carrier in handling or caring for any such article or package, the same shall be borne and paid solely by the shipper, consignee and/or assigns. 612 PROBLEMS IN EXPORT SALES MANAGEMENT 8. The Vessel shall have liberty hereunder, either before or after i^ro- ceeding to or toward any port of discharge or transshipment, to proceed to or toward, call, enter, or stay at any port or ports, although not upon the usual or any route to, and although in a contrary direction to or beyond the port of discharge or transshipment, once or oftener, backwards or forwards, in any order or rotation, for any purposes whatsoever, though pertaining to another voyage, and the same shall not be deemed a devia- tion but be deemed within the voyage hereby intended as fully as if specifi- cally descrilHHl herein ; and the Vessel shall have liberty also to sail in or out of ports and to proceed with or without pilots ; to proceed under sail or in tow; to tow and assist vessels in any situation and to deviate for the purpose of saving life or property; and in case of salvage services rendered to the Goods during the voyage by another vessel belonging to or in the service of the same carrier, such services shall be paid for as fully as if the salving vessel belonged to or was in the service of strangers. 9. The Carrier shall have liberty, in its discretion, before or after shipment or loading, to substitute, or ship the whole or any portion of the Goods by any other steamship or steamships, although prior or sub- sequent; and shall have liberty in its discretion, at any port or place, to transship, land and transship or forward the Goods, or put into store, craft or other available place and thence transship or forward the same to, or en route to destination, by any vessels, crafts or other conveyances, by land and/or water, subject, if transshipped to a continuing carrier, to the provisions of the usual form of bill of lading of such carrier whether issued or not, and on deck if required by any continuing carrier or the character of any vessel or craft and upon delivery of the Goods into the custody of a continuing carrier, or representative, shall there- upon be relieved of all further responsibility for the Goods, and the clean receipt of the continuing carrier, or representative, shall be in evidence as against sliipper, consignee and/or assigns of delivery of the Goods to the continuing carrier in good order and condition. In case of transship- ment the Carrier may delay forwarding awaiting a vessel or conveyance in its own service or with which it has established connections. Cargo for ports or places in Jamaica other than Kingston, may be transshipped or otherwise treated in accordance with the privileges of this or other articles at Kingston or other Jamaican port, at shipper's risk but ship's expense, lighterage, wharfage and other landing charges at destination to be paid by consignee. If the Goods are delivered to any transfer agent, wharfinger, warehouseman or others or from one to the other for the transfer, handling, custody, delivery and/or other disposition thereof or awaiting same, such transfer agent and others shall be deemed the agents solely of shipper, consignee and/or assigns, and all responsibility as car- rier or otherwise of the Vessel, Carrier or others so delivering shall there- upon be ended until the Goods again come into its possession. 10. If the Vessel is prevented by Quarantine from entering or from making due disposition or delivery of the Goods, or is detained at Quar- antine, the Goods may be forthwith, witliout notice, discharged into laza- rettos, craft or other places immediately available, at the risk and expense of shipper, consignee and/or assigns, and such discharge shall be a com- plete delivery of the Goods hereunder and all responsibility of the Carrier therefor, as carrier or otherwise, shall end without notice as soon as the Goods leave the vessel's tackle and full freight through to the destination of the Goods be payable. The Carrier may submit the Goods or the Vessel with or without the Goods on board to fumigation or other quarantine treat- ment in order to enter, dock or secure despatch for the Vessel. If, by reason of Quarantine, blockade, Avar, hostilities, conditions of surf or DELIVERY OF EXPORT ORDERS 613 weather, shortage of lighters, riots, or of strikes, lockouts, stoppage or shortage of kbor, of the Carrier's employees or others, or by reason of any of the Excepted Causes mentioned elsewhere in tliis Bill of Ladine- lack of permit to land the Goods, or other conditions existing or threat- fr. ^* f %f '* «^ transshipment, entry or discharge of the Goods or else- where the Vessel is, or in the Master's opinion is likely to be prevented or delayed in reaching or entering, or making due delivery of the Goods at the port of transshipment, entry or discharge, or delay at said port or in discharging tliere beyond the usual time, then either with or wTth ou proceeding to or toward or entering or attempting to enter said port, the Goods may be retained on board and discharged on return tr p or subsequent voyage, subject to this Bill of Ladingf and all Hbert es hereunder or be discharged as convenient for the Vessel at aii^ other por to which the Vessel is bound or may proceed, or be returned to port of shipment and there discharged and redelivered' to the shi^pe , at rfsk and Sr,W h ''^T\ ''T^'"'' ""'^/^^ ''''^Sns, all respoLsibilities of 'he Carrier being ended without production of this Bill of Lading upon such discharge and full freight through to destination of the Goods Cethe with extra compensation for additional transportation and service! and any extra expenses being payable by shipper,' consignee and/or assies and at Carrier's option the Goods may be carried or^ forwarded to desd^ nation from any other port at which so discharged at risk and expense ot he shipper, consignee and/or assigns, subject in any case hereunder s perfSrmeTr ^ ^^f/^P-ts of this Bill if Lading ^f trrnsporSn IS pertormed by the Carrier, or to the usual Bill of Lading of anv other carrier performing the same. The Carrier may, in its StLn in or e to secure despatch for the Vessel at port of discluirge entry or transs it ment of the Goods, proceed thence with the whole or any portion of the goods on board and discharge the same on the return trfp^rsubseaueu Uuf J I ^ f- ^^""ler's convenience to destination at Vessel's expense other reelects ttV;'"""' consignee, and/or assigns in either case, subjlc hi otner respects to the provisions of this Bill of Lading in case of tr-ni«,>r,r reS,X''ti.e'r;r' °- °^ '"- "™'" "" »' ■^■^'■■/»*- -roii^^ts?:; 11. The Carrier shall not be liable, as carrier or otherwise for anv r"afterr'duS""/1^^-f ' ^^-"-^ «-'"""^^ ^^^^^ tranT'or b^f^r'e"^ delivery or oth"^. °' ^l'^^^ awaiting loading, transsliipment, discharge quen^e thereof or T. " ^'°"' f "^ ''''''' wheresoever occurring or conse- barratrv tCft ^ k"'? "''^ *" extinguish the same; by jettison; by barratry, theft or embezzlement of master or crew; by act of God- bv enemies, pirates, robbers or thieves; by arrest or restraint of Governments'^ princes, rulers or peoples; by prolongation of the voyage; by leJ^ pro Goods'or oT'Zv" T'^:^' ^^^--^-tion or othi t^atment^ of '"he Goods or of the Vessel with or without the Goods on board required bv Quaran ine, sanitary or other public authorities, or in order lo obtain despatch for the Vessel or Goods or clean bill ^f health; by pestile I'e r ot , wars rebellions; by strikes or stoppage of labor troubles^ of Car rier s employees or others; by explosion or bursting of boilers damage from steam, breakage of shafts, accidents to or from machinery or break- 61i PROBLEMS IN EXPORT SALES MANAGEMENT age or derangement thereof; by any latent or other defect in hull, ma- chinery or appurtenances of the Vessel or any graft or unseaworthiness thereof, although existing at time of shipment or transshipment or at the beginning of the voyage, provided due diligence shall have been exercised to make the same seaworthy ; by collision, grounding or stranding ; by heating, heat of holds, or effects of climate or temperature ; by ice, earth- quake, sea water, wetting, rain, or spray, damp, frost, decay, putrefaction, ferment, rust, stains, sweat, floods or freshets by giving away, falling or destruction of wharf, shed or warehouses ; by damage incident to trans- portation ; by change of character, loss of weight or contents, drainage, leakage, breakage, shrinkage, evaporation or wastage; by cooperage or mending; by vermin, or rat damage; by stowage or contact with, or smell, evaporation, leakage, escape of contents or taint from other goods, the Vessel being privileged to carry any other articles, whether hazardous or contraband or not, and live stock, as cargo or otherwise, on and/or under deck; by nature of the Goods or cargo, or insufficiency of packages though known before shipment; by explosion or combustion of any cargo, whether shipped with or without disclosure of its nature or condition; by oblitera- tion, error, insufficiency or absence of marks, numbers, address or descrip- tion; by land damage, risk of craft, hulk or transshipment; by faults or errors in navigation or management of the Vessel, provided due dili- gence shall have been exercised to make the Vessel in all respects sea- worthy and properly manned, equipped and supplied ; by any act or omis- sion of shipper or owner of the Goods, or of his agent or representative. Flour, meal, corn, rice and other foodstuffs in sacks, being subject to minor loss of contents notwithstanding due care, it is mutually agreed that to the extent of one-twentieth of the original weight loss of contents of any such package shall be deemed without Carrier 's fault, and the Carrier shall not be responsible therefor. 12. The shipper shall be liable for and bear any loss or damage to the Carrier or to others caused by inflammable, explosive, noxious, hazar- dous or dangerous goods or articles shipped without full disclosure of their nature at the time of lading and entering hereon, whether shipper be principal or agent, or aware of the njiture of the goods or articles or not; and such goods or other articles may be thrown overboard or destroyed at any time by the Carrier without compensation to any person; and extra charges and expenses, if any, for discharging, lightering, handling or caring for, or otherwise ■ occasioned by such goods or articles, or those declared or considered noxious or hazardous by the civil or military author- ities of any port, shall be borne by the shipper, consignee and/or assigns. Goods or articles of such character may be carried on deck, as well as any ethers whose nature or bulk requires them to be so carried, and the same shall be at the risk of the owner thereof of all loss or damage thereto occurring while so situated not shown due to the Carrier 's fault. 13. General Average shall be payable according to York-Antwerp Rules of 1890, and as to matters not herein provided for according to the law and usage at the port of New York. If the ship owner shall have exer- cised due diligence to make the vessel in all respects seaworthy and to have her properly manned, equipped and sujjplied, it is hereby agreed that in case of danger, damage or disaster resulting from fault or error in navigation or in the management of the Vessel or from any latent or other defect in the Vessel, her machinery and appurtenances, or from unseaworthiness, although existing at time of shipment, or at the beginning of the voyage (provided the defect or unseaworthiness was not discoverable by the exercise of due diligence), the shippers, consignees and/or owners of the cargo shall nevertheless pay salvage and any special charges in- DELIVERY OF EXPORT ORDERS 615 curred in respect of the cargo and shall contribute with the ship owners in general average to the payment of any sacrifices, losses or expenses of a general average nature that may be made or incurred for the common benefit or to relieve the adventure from any common peril. 14. This shipment is subject to all the terms and provisions of the Act of Congress of the United States, approved February 13th, 1893, entitled "An Act relating to the navigation of vessels," etc., and of Sec- tions 4282 to 4287, each inclusive, of the United States Eevised Statutes. The Carrier shall not be liable for gold or other precious metals, precious stones, bills, notes or securities, documents, pictures, glass, china, silk, furs, lace or any of the articles enumerated in Section 4281 of the United States Eevised Statutes, except in accordance with such statute, and after written notice of the character and value thereof at the time of loading and entry thereof. 15. The Carrier shall not be responsible for specie, bullion, jewelry, plate, precious stones or metals, bank notes, bonds or other negotiable documents or valuables until actually delivered on board the Vessel to the master or other officer in charge of the deck at the time and signed for by him. Delivery must be taken on the Vessel's deck at port of discharge, and the Carrier's responsibility shall thereupon cease. Such articles are received and the rate of freight has been specially adjusted upon the condition and understanding that the value thereof has been insured by the shipper or others for account of the Carrier in respect to its liability, under usual form of Lloyds Policy or equivalent, and that the shipper by accepting this bill of lading represents that such insurance has been effected, and undertakes that the Policy shall be available for the Carrier 's protection in case of need. 16. The Carrier does not undertake that the Vessel is equipped with re- frigerated or specially cooled or ventilated compartments or otherwise equip- ped for transportation of goods or articles of a perishable nature, nor whether so equipped or not, to transport such or any other goods or articles in any such compartment or otherwise than as ordinary cargo, and shall not be liable for any loss or damage from failure so to do, unless such transpor- tation is expressly stipulated for herein. Fresh fruits, vegetables and meats and any goods or articles of a perishable nature, however carried are re- ceived and carried at the sole risk of the owner thereof. The Carrier shall not be responsible for any loss or damage to such goods or articles from temperature or atmospheric conditions, risks of refrigeration, cooling, or ventilation, accident to, or latent or other defect in, or explosion, breakage, derangement, insufficiency, shortage or failure in any respect or unsea- worthiness of, or in respect of any refrigerator or refrigerated or specially cooled or ventilated compartment or plant, or apparatus, boiler, engine, machinery, appliances, materials or supplies therefor, or any part thereof, although existing at time of shipment or transshipment, or at the begin- ning of the voyage, provided, in case of loss or damage from any such unseaworthiness, due diligence shall have been exercised to make the Ves- sel seaworthy; and if any such goods or articles shall at any stage be, or in the opinion of the Master or Carrier 's representative be decayed, injurious or offensive, or be condemned or ordered destroyed by the Health or other authorities, the same may be thrown overboard or destroyed, without notice, before or after arrival, and the Carrier shall not be respon- sible therefor. The Carrier may discharge any such goods or articles or other cargo, without notice, immediately the Vessel is ready, notwith- standing danger to such goods or articles from freezing or other weather conditions, and all such goods or articles are received subject to the risk of such discharge, and if delivery thereof is not taken, without notice, from 616 PROBLEMS IN EXPORT SALES MANAGEMENT the Vessel 's tackles, or, at Vessel 's option, from the wharf as soon as available after landing, the same may be left on wharf or other con- venient place or may be held on board and/or placed in warehouse at risk of shipper, consignee and/or assigns, and if held on board for sucli reason or because of weather conditions the Shipper, Consignee and/or assigns shall pay for any detention of the ship therefor, the amount to constitute a lien on the goods. The provisions of this Article are in addition to and not in substitution for the other provisions of this Bill of Lading, and all goods of such nature as mentioned herein or to be carried in refrigerated or specially cooled or ventilated compartment are received and are subject also to all other terms, conditions, exceptions and limita- tions as to liability contained in this Bill of Lading. 17. The Vessel may commence discharging upon arrival immediately she is ready, without notice, at any hour of day or night, and dis- charge with or without intermission, at wharf, in stream or elsewhere, at Carrier 's convenience, any custom of the port to the contrary, notwith- standing, (except that in United States ports delivery need be taken only during the usual working hours), and the Collector of the Port is hereby authorized to grant an Order for the discharge of the cargo imme- diately after Entry of the Vessel. Whether the Vessel be discharged at wharf or in stream or elsewhere, the Goods may, without notice, be in Avhole or part discharged over side into lighters or other craft or be otherwise discharged at risk and expense of shipper, consignee and/or assigns from the time the Goods leave the Vessel 's tackles, the Carrier being hereby authorized as agent for the shipper, consignee, and/or assigns, to employ or appoint lightermen, contractors and/or others therefor, without respon- sibility of the Carrier for the character or condition of any craft, for account of shipper, consignee and/or assigns, notwithstanding the latter are at hand with their own craft, or ready to take delivery otherwise. Delivery of the Goods shall be received without notice from the Vessel 's tackles, package by package, as the Goods come to hand in unloading, or as soon as available if discharged on Carrier's wharf, all charges and expenses in connection with the Goods from the time the same leave the Vessel 's tackles to be borne by shipper, consignee and/or assigns and constitute a lien on the Goods. If not so received, the master or agent of the Vessel is hereby authorized at the risk and expense and for account of the shipper, consignee and/or assigns, without notice, to enter the Goods, and after discharging the same as above provided may deposit them in hulk or craft or in or upon wharf, warehouse, Public Stores or Custom House, or permit them to lie where discharged or landed, or make such disposition thereof as the authorities of the port may direct, subject at all times to any lien of the Carrier, including storage charges by the Carrier, and to that end to employ such lightermen, truckmen, warehouse- men, wharfingers or other agencies as may be requisite, customary or proper, who shall be deemed the agents solely of shipper, consignee and/or assigns and not of the Carrier, the latter being hereby relieved of all responsibility for or in respect of the Goods, without notice to any person whatsoever, as soon as the same leave the Vessel's tackles (but nothing herein contained shall be deemed to limit the right of the Carrier as above provided, to appoint lightermen and others notwithstanding consignee or others are at hand) ; or the Goods may be retained on board and disposed of as provided in case of quarantine or other detention existing or threat- ened at port of discharge and subject to the same terms as to risk, expense and otherwise. If the shipper, consignees or assigns entitled to the Goods shall not within 48 hours after unloading, without notice, pay the freight and all other sums payable to the Carrier by shipper, consignee and/or assigns and relieve the Carrier from all further responsibility and expense DELIVERY OF EXPORT ORDERS 617 for storage charges or otherwise iu respect to the Goods the Carrier i, hereby authorized at any time on 48 hours' notice by n ail to cons^Jnee or assigns or other person named for notice in the bill of 1 idin- of •? such consignee or assigns or other person is unknown or cannot be' found n port, then without notice, to sell the Goods and retaiSand pay from of the'S / "'^r^'' '"""^'^'^^ ^"^ ^" «"-« ^^' the Carrier in^espec of the Goods from shipper, consignee and/or assigns and all other charts he first of said ports at which the Vessel may Slltir Goods' ^7. he' landed at said port of entry as the port of discharge therefo? ^ ^" inee or for the performance of nn/l.tv, GojcrMient agent or nom- or other anthorities or deUver^Ti, ?^H "'?'?' "'"""' ^^ *'« <■"'«»"" others, any resZi. buiv of Sf p . T'^'^' °' """I" ""thorities or the consigLe fn horWe, Ivl rfiSerf ■■ """' ^' "!'"'"' "■"'""" "»"« »» as the Goods are r/Sfl or ,,?'' ,™'"T'°"'""''' <"■ »"■"». "s »"<>" thereupon in^ S" L" e'"Sd" of ,!",',;» r We' ^ Str T 1 ''"^'^ brd^eeLrtfe :,:sf,:u"lf'\ir''°"" "" '^^^^^ the Goods; „nt t& e-rst.feo'jLrXetltr.iroTtS'S^ie^ paotageI,'"'.S'"s.S"be^teif1h::e:!;^S IZaT.'^l? '°^ "-'' »' :ctay/tr.ha^^t"swLVr-:JBr-'""'^^^ consignees of like goods rceord.n.tiH.^.'T"'""'''' '" "'" '""'«"'"* good delivery; and if any c™s tl i t'^fg^ a-1 be accepted as called for b'rtin/nndaSdISr f ''Se\trb„"t%'' dTe'' T '•"'i""' numbers, shall, at Carrier's ontinn L 111 ,^^ ^"* of different marks or G^ods and be 'accepted b^ 1:^^^:^^^-^^^ LFit^t;! - nol\Jefmo^lrlZ ;:Xg: norls'oT'^' ''V-'^'T ^' ''' ^-«^« ^^«- thereon has been adjusted on ^.chitf-P'' '"^' ^^°*' ^'^^^ "^e freight agreement shall b e'^Sdence of a differTnt";;i^ "" T' ^-^'•^^''^t-'^ or liability of the Carrier in respect of theM l ' .^^ ^^'"P^ting any thereon higher than the invoW Hi r- T\^-' "'^ ""^^"^ "'^'■^^^ be placed under) not%xceed£rg $foO ToTi. p^ ka^gr'ntl o'o"'"'' Vpaia'^.ere. such other value as may be stited wS , •^, P^"" """^^'^ ^"^^ (or liable for any damag^s^for dehv px^/.i^' T '''''" "'^ ^^"i'^^ be held not exceeding^said vSL nor for^i^v nl'fi^^ *'''°*^ P" ^^^*- «^ '^^^ ''ost over such cost not IxceedW said^a^e no'/ f"'"'"'" °^ P"^^ °^ ^^'^' quential damage and the Carfie^ hall alw.vTb .^""^ 'P'"^^ °^ '^«°««- any lost or damaged Goods ^' ^^''' *^' «P*^«^ ^^ replacing of 'the ZXt^ S^f^Serrrrtate'^^'^'^d"^^' ^^^'^^ — ^ ex.ts or may exist the Carrier^^ Vestrlgrn^^t^L^l^^bfe^^oVi^^y^^^^^^^^ 618 PROBLEMS IN EXPORT SALES MANAGEMENT loss, shortage or damage, unless notice of claim therefor be presented in ■writing to the Carrier or to the master or agent of the Vessel before removal of the Goods. If there is no opportunity to discover before removal, that such loss, shortage or damage exists or may exist, then the Carrier or Vessel shall not be liable therefor unless such notice of claim be so presented within 48 hours after removal of tlie Goods. The Carrier or Vessel shall not, in any event, be liable for any claim or demand arising under this Bill of Lading or in respect of the Goods, unless notice of the claim be presented in writing to the Carrier within thirty days after delivery of the Goods to tlie initial Carrier hereunder, nor unless suit therefor is commenced within sLx months after delivery of the Goods to the initial Carrier hereunder, and the lapse of such period shall be deemed a complete bar to recovery in any such suit or proceeding not sooner com- menced, notwithstanding the Carrier may be a non-resident or a foreign corporation. Nothing shall be deemed a waiver of the provisions of this article except a written express waiver signed by the Carrier. 23. In case of any loss or damage for which the Carrier shall be liable, the Carrier shall to the extent of such liability have the full benefit of any insurance that may have been effected upon the Goods or against said loss or damage, and as well also of any payment to insured by underwriters repayable only out of recovery against the Carrier, notwithstanding the underwriters were not obligated to make such payment. 24. Whether so stated or not, if this Bill of Lading is issued against lighter, warehouse or shipping receipt or another Bill of Lading or any similar document, the issuer of such document shall be deemed a prior Carrier or custodian of the Goods, subject to the provisions of such docu- ment, and the Carrier issuing this contract shall not be responsible for the Goods until actually delivered into its custody. If the Vessel, for Carrier 's convenience or otherwise, loads in whole or part in stream or elsewhere than alongside where the Goods are received for shipment, the Goods may be transferred to the Vessel at risk and expense of shipper, consignee and/or assigns until loaded on the Vessel, the Carrier being authorized to employ or apj^oint transfer agents and/or others therefor to be deemed the agents solely of shipper, consignee and/or assigns. The Goods may be transported at any stage by lighter or craft, either in course of loading, transshipment or delivery, or en route to destination or otherwise. All such transportation, whether at Carrier's expense or not, shall be at risk of siiipper, consignee and/or assigns, subject in other respects to the pro- visions of this Bill of Lading, and if entrusted by the Carrier to others shall be deemed to be by connecting carriers subject to their usual con- tract without responsibility of the Carrier in respect thereof. 25. Unless special care in consideration of increased freight has been arranged for and is provided for herein, all cargo is subject to stowage in holds and handling in quantities along with other cargo in any customary manner required for usual despatch, and to such stowage as available when the cargo is received or as the nature of the other cargo permits, and to contact with other cargo, working and pressure and the like, and the rate of freight is adjusted with reference to such handling and stowage only. All cargo liable to loss or injury by breakage, contact with other cargo or in any other manner under such conditions, should be so wrapped, cased or packed as adequately to protect the same therefrom; and the Carrier shall not be answerable for any loss or injury to foodstuffs or other loose materials in single bags, liquids in glass or tins, glass, un- wrapped bales of skins or of other cargo, unprotected cargo of any sort or to any cargo when such loss or injury would not have been received if the cargo had been so protected, and shipper, consignee and/or assigns of any cargo not so protected shall be answerable for and bear any loss or damage to the Carrier or others arising therefrom. Live birds or animals and livestock are received at sole risk of shipper, consignee and/or assigns DELIVERY OF EXPORT ORDERS 619 the Vessel not having any special equipment therefor, and are subject in other respects to the provisions of this Bill of Lading, and to be deemed included in the term "Goods." 26. In addition to the other terms and provisions of this Bill of Lading which sliall be deemed affected only in so far as inconsistent, the bill of lading shall be subject to any special clauses written, printed, pasted or stamped on front or back thereof. 27. This Bill of Lading, duly endorsed, shall if required, be given up to the Garner in exchange for a delivery order. 28. This Bill of Lading shall be construed and the rights of the parties thereunder determined according to the law of the Gommonwealth of Massachusetts subject to any laws of the United States inconsistent there- with. ». The Shipper, Veuel. Conilcnee. Deitlnallon. «n<) Qoodi refemd to ontpaie u aianlloned or dokritod Shipptr ., Ri>g»l ShMCBramy Ve«,l . SBg_P»ilS si.i,Si„„\. .i^f"^ •°-'*^' Ootob«r 15. IK\ tide (tMKk) heceof a Dr<;tination of theG COMTIKTB OF PACKAGES SHIPPEk'B SH„™', Rats St>.m.„, lo-ordar of- "•Ol Sho« Coop "y. -- — "BotUy — Ara«H' * C»Kltt -Hamwr lA- — a -C«W, --C«1IH Hid to OCBUU «k0M. _ s»/S US lbs. ^J&_ U « — — . - — ... 24a ka. — . . -~ . .. _ 0_T_ N E 0 ! T-l.J'JU. E) i 3« fflUmae ffllirrrot th. C»rr.o l^.o.T Co»l-»,,, by it. wnl bu .Igned a.,d l..„e .- - oriplnjl tltlta of Lading excluaive erf ooplea, »l) of the kane tcoor asd date ann n U.lof «««npl.,h..d tbo «tho™ to ,UBd «id. •. a 1 o tne Mne Uoor to* d«(.. «m of Dated at BOSTON, Vb,"' Total Steanufup freight. ■.1dt>anf«.. UNITED TKVurtttiJ/ Losa, it any payable to upon surrender of this Certificate. -or oraer. liability for b as«it at nu claim). RB fully an If tba property eh' port, notice aball b» tmmedlotely ler shDll be aubmltted for approval t '^ltV''re.'e'lpl"l eted occordlng to tbe OBage of tbe p h the Revenue I.au 8 of Great Brltali Not valid unless countersigned by DAVSaiPORT * CO. Countersigned ?4Y™?9?T.*= .?9t . [1\Mm^ FORM 33. Certificate of Insurance 624 PROBLEMS IN EXPORT SALES MANAGEMENT which allows the company to insure a number of ship- ments without going through the formality of making separate arrangements for each one. For each ship- ment is filled out a policy similar to the form below, NOTICE Tn event <^f lops or damage, report some Immediately. Arrange for u purvey with tlie Corapaoy'a Claim Agent at the port of dLscharge or disaster. If there be none at or near aoch port, notice stiali De given to an accredited representative nf the National Hoard of Slarlue Inderwriters of New York or the lioard of L nderwriters of New York; or If theie be none, to the accredited represe"iitatlve of Lloyda, London. Ite<)uest such representative to hold a purvey and Issue a certlflcate stating the cause and extent of the loss or damage as well as the market value of the uierchandlse Involved had It arrived In .sound condition. When poods are discharged from a vessel in a damaged cundltiou, file a claim in writing against the vessel owners hefore removing goods from dock. After the foregoing formuliliee have iteen comiiiied n-itb a st-Ttemeot of tlie claim with the complete documents, Includiuf ■ the SETTLING AGENTS CLAIM AGENTS UNITED KINGDOM. { IX>NI)ON— nogg. LLDdler * Co. nOGO. LIJIDLET i CO., SCANDINAVIA. Palmeraton Houae, Old Broad St, london, E. C. I n,'i"LrH'4i'JEN^.i."D"'l"co"""'"" SECBETAItT OF THE COMITE DES ASRUBKURS MARIT1ME3 DE PABIS S Bne da 4 Septemhrev Paris.'! *''*'";„,.|;, oNA-nilo d. o 1 HueU«. I. I CIUIIAITAII— Sultb tUMMtl * 00, ITALY AND MEDITERRANEAN PORTS. EVAN MACKENZID falazio della Merldlana. Genoa, j ?oi'?*s»f["'-L."8i'™"i oo, RUSSIA. SKCRETABT ROSSIA INSDRANCB CO. Pcuogtad j '""iUiu'i'iJIir,^™' ""tssa. rETnooiP, niTiU n.U)lV08T0C«- BRAZIL. THOMAS P STEVENSON. Companhla Eipreeso Federal. j ''l^'itvnA." rTifiN^'S°"\**i!AiivDA Vo'^^nobti!*''perna^ .Q D jt i,« .. T>i J T . 1 JANIilHO. BIO GRAMiE nO NOBTB, BIO GBANni PO 6UL aAWTOS— 4S BuB da Alfandega, Bio de Janeiro. [ (\>iiip>ut)iB Euprt^Mo podeni. ARGENTINE. SANTAMARINA e HIJ09, Victoria 804. Buenos Aires, j nUENOs AinE!i_a.oi.m.rlii. . Bljoc WEST COAST OF SOUTH AMERICA. RAE BANNA, Oalle Cochrane, 687, Valparaiso. GUAVAQUi'i..'EruAoo«-"odMS°Tr.aiiig Co. 1 I.IMA. 1 EBU-AllH-rto Dclboj. I*. O. B«i 11«. CUBA. AQUILINO OBDONEZ 7a Cuba St, Havana ( havana-a^uiiIoo ortDiu«. JAPAN. r. 8. MORSB 16 Maye M/ichU Kobe. ~ CHINA. ANBERSEN, UETEB k CO.. L/rp,, of China, jciiANosnA rankow. harbin. BONosoNa. tLAlOAH. pbki.n. tibntvui— 4-5 Yuen Ulng Yuen Road, Shanghai. ) ^^'""^ """ * *• ''"■• •' ""^ INDIA. DAT— RUIIck. Nlien * Ot>. GLADSTONE, VeYLLIB « CO. , Sl>«Ur» A PHILIPPINES, STRAITS SETTLEMENTS. EAST INDIES. AX'IA— Blnrtcn A Ox >AN— 8Iurt«ra A Cn- ARANO— aiujtrra A 0». AUSTRALASIA. R. W C.VUERON « 00. Sydney. N. 8. W. { "'k""^!''^.^',"^''"*^.''' ''™™' ''""'"■ *»»^J«»"»- AFRICA. [ZANZIDAR, UOMIIA.SA — Smllb. Ut^kroxl* A Oo, Adjusted ai>d approved claima under thit Certificate are payable through the following Banki : BRANCllUS OP lll(,\NriIK.S OF THE NtTIONtl CITV BANK OF SEW YORK «T - THE INTERNATIONAL BANKING CORPORATION OF NEW TORK AT - Bnenoa Aires. Argentine Havana, Culm Itonibay Mi'^IelUa Rio de Janeiro, Braidi Santiago de Cuba. Coba Calcutta rnnnma Santos, Itrazll Bahla. Itrazll Cnntoa Peking Montevideo, irraguay Valparaiso. Chile ("el'U Pnerta Plata .Kao Paulo, BraiU Genoa. Italy Colon San I'edro de Uacorla Petroprad, Russia llaukoif Santo I>omlngo IloMK Konc Slianghal BR.\N(ni OF Kot.e .'^Ingaiwre THE FARMERS LOAN !• TRUST CO., AT PARIS, FRANCE KmiLm Tlenl.'iln Manila Yokohama FORM 34. Reverse of Certificate of Insurance DELIVERY OF EXPORT ORDERS 625 which becomes effective upon the signature of the agents of the insurance company. It will be noticed that this certificate contains provisions for insurance against theft, robbery, and pilferage, a form of insurance which has been very necessary in the course of the past few years. It will be noticed that the invoice does not contain the bill of charges for insurance, ocean freight, consul fees, preparation of the bills of lading, handling, wharfage or lighterage at Havana. Many firms place upon the invoice the statement of charges, but the Export Shoe Company jjrefers to send a separate bill of charges for freight, insurance and other items. The documents are now all complete and ready for pre- sentation to the bank, together with the draft which is made out for the sum of the invoice total and the bill of charges. FORM 35. Draft 626 PROBLEMS IN EXPORT SALES MANAGEMENT The credit manager sends this draft, with copies of the consular invoice, commercial invoice, bill of charges, and insurance certificate, to the bank either for collec- tion or for discount. If for discount, the Export Com- pany will receive its payment for the shipment as soon as the draft has been accepted, assuming that the credit of the Gonzales & Castillo Company is satisfactory. Form 37 on page 627 may be used to notify the bank. On the same day a letter as shown in Form 36, below, advising the customer of shipment is mailed to him, to- gether with a copy of the invoice. EXPORT SHOE COMPANY EXPORT DEPARTMENT BOSTON. U. S. A. October 17, 1921. Ueesrs. Gonzales Sc Castillo, Havana, Cuba. Gentlemen: We are pleased to inform you that shipment of your order #20 went forward on the 15th of October via the S. 8. Pablo of the Pastor S. S. Co. This shipment comprises three cases, as per the enclosed copy of our invoice. We are drawing on you in the usual manner. We trust that the shoes will be received promptly and we feel confident that they will open up to your entire satisfaction. Very truly yours, EXPORT SHOE COMPANY FORM 36. Notification Letter to Customer DELIVERY OF EXPORT ORDERS 627 THE BOSTON BANK Foreign Departmeil Boston, Mass. B/Exchange Our No For Usance On D S i Present upon Deliver document' (receipt of draft (arrival of vessel (acceptance of draft (paiTue.ii iJ dflaft Protest for ("""acceptance (non-payment If extension is requested, gram _days. collecting interest ; If paid before maturity allow discount of If drawee remits direct, deliver documents free In case of need refer to Allow inspection of goods or sampling orders In case of refusal have advice sent by mail (or by cable for amounts of S250.00 and over) Have advice of payment cabled at (my expense Remarks of repudiation instruct correspondent to make entry, place in warehouse, and insure goods, pending in 1 DRAWEES STREET ADDRESS ON THE DRAFT WILL GREATLY FACILITATE COLLECTIONS All drafts on foreign countries must be signed and endorsed in pen and ink FORM 37. Form for Notifying Bank 628 PROBLEMS IN EXPORT SALES MANAGEMENT When collection has been made, the transaction is complete. Upon documentation in export trade, see especiaUy Paper WoTk in Export Trade, Bureau of Foreign & Domestic Commerce, Miscellaneous Series No. 85, prepared jointly by Warren Maule and Guy E. Snider; this contains two sections, one of which is devoted to the descrijjtion of four typical transactions and the other containing a considerable number of practice forms and descriptions of export teclinique relating to delivery. The His- tory of an Export Order, published by the National Association of Manu- facturers, continues to be a very satisfactory exposition. Cf. also Eosenthal, Technical Procedure in Exporting and Importing, 'Part I. European prac- tice is illustrated in Dudeney, The Exporter's Handbook and CAossary, Chaps. XXXI, XXXIV, XXXVII; and Sounedorfer-Ottel, Die Technik des WeWiandcIs, Vol. I, Section V, DELIVERY OF EXPORT ORDERS G29 Addenda 2 (see page 586) : *The following- is a typical form of insurance certifi- cate issued under an open or floating policy : CERTIFICATE OF INSURANCE (S4^_^ THE ci£. Marine Insurance Company OF THE CITY ^--^ ZT^ OF NEW YORK ThU certifiet, That._ ^_ and subject to the conditions of Open Policy Xo in the smn of Valued at On board At and froa *-3 """»• -^ — 8 2 ' — 15 insured under -of The Marine Insubance Company ■ - - - ^ —Dollars 1x163, if any, payable to upon surrender of this Certificate. Thla C^rtlflcBte [ " — PJ -"i — - -StH— — rg| « the plore of (hp pa,.y 'nnaJroS',, „„ , r>ert„ B,^« r^O^y ^ ^^' ' h# purposf nf rotlertlng .... * ^ Wled tlDgdom. '" twiieci a ciajm under MARKS AND NUMBERS SPECIAL CONDITIONS UkUiK part Id le restraint, dcteon flier lawfu !";?•„ FORM 38. Face of Insurance Certificate J 630 PROBLEMS IN EXPORT SALES MANAGEMENT FORM 39. Reverse of Insurance Certificate The insurance policy, as distinguished from the insur- ance certificate, differs as iUustrated by the following forms : OPEN POLICY ..., ON ACCOUNT OF upon all fclads of lawful goodH and mercbandlM, lad«n or to b* ladei Whereof !■ mantcr tor llitn prcm-nt voyage. or wlioi-vcr rise fliinll go for nmatei' lo tbt "aid vestirl, or b; whatever otlier name or nnmrii thp said vcnnel or the master tlier(>of, Is or abaU be niuncd or rnllcd, ItKCINNINt; tbe adveoture upoo tbe aald gooda and nxTrbandlno. from nod Imnutllatrly foIlowliiR the loading IhrrMf on hoaro of the R3U] vessel at as aforeaald, and no ahnll continue and endure until lh<- snld Bo«da and merchandlBe, fihall be nafely landed at Bfl nforcsnld. AND It pitinll and nviy he lowtiil fur the nnid v.-bbi-I In b»r rnyogf to pr^r'ed nnd sail to. touch and itay at. any porta or plfUfs, tf tliercwnto obllcrd by otn tn of wcnther, i.r nttuT unnvni.lnlile ^ y^t>.....l —ttt.Jp.> ^r^^fjAl^p. »- f\.^' 'Tlirtnf" '*'''" '"'■* -»..fl^ ..r..! n,,.,/.l..»^tL.^ h,.Fi^m l..uiifiul np^uaillu.1 JM^fnUi... ltmlml^. PROBLEMS IN EXPORT SALES MANAGEMENT The assistant export manager volunteered the infor- mation that in his opinion the data in government re- ports was so out of date when it was finally published that the company would lose valuable time by relying upon information received from government sources. The manager of the foreign department said that this information might be late, but that at least it was ac- curate and that it was far better to rely on sound facts than to "go off half-cocked" because of some branch manager 's pet rumor. He said that he agreed that branch managers should give more information in their reports than they were giving at that time but suggested that although it was all right to have a branch manager report on the amount of stock on hand, the immber of new cus- tomers, and the amount of profit made, to have him report on something he knew nothing about was abso- lutely useless. What information should be included in the reports of the foreign branch managers of the Mott Company! Should this information be reported on a standard form or only by letter? Problem 157 HoLDEN Tool Company — Perpetual Inventory System The Holden Tool Company has approximately $3,200,- 000 worth of machine tools, builders' hardware, and con- struction tools, stored in its branch warehouses in London, Paris, Antwerp, Buenos Aires, and Tokio. In 1919 this inventory ran as high as $5,100,000, but the company suffered heavy losses l)ecause of depreciation and carrying charges on materials for which there was no immediate sale, in order to minimize the risk of depreciation and at liie same time i'(>duce operating ex- penses abroad, tlie c()mi);niy considers it advisable to make a further reduction in its inventory. For this pur- pose a perpetual inventory system with minimum limits is contemplated. This system would be operated from the home office. EXPORT SALES CONTROL 665 The Holden Tool Company was originally organized to carry on construction work in the United States and abroad and incidentally to sell construction machinery. As the company expanded its sales, it became evident that there was a need for a separate organization to handle the sale of construction tools and builders' hard- ware in order to leave the engineering force free to con- centrate on construction work, the submitting of bids and the handling of building contracts. Later, machine tools w^ere added to the company's line in order to permit it to maintain its European branches profitably even though war-time construction had fallen off. In addition to its foreign warehouses the company maintains sales branches in Madrid, Milan, Kio de Janeiro, and Mexico City. The branches in England, France, Italy, and Spain, are operated as subsidiary companies in order to avoid paying excessive taxes and to comply with the laws of those countries requiring the publication of a balance sheet without giving information as to the financial con- dition of the entire company. Generally speaking, there is a demand for machine tools in France, England, and Japan, and for construction tools in parts of Latin America. For establishing a perpetual inventory system which would show the material on hand in each branch ware- house, the company would require no reports from its branch managers other than those it is receiving at the present time. Copies of sales slips from each branch having a warehouse, as well as orders from the sales branches, are sent to the home office, which of course also has a record of all goods that have been ordered by and shipped to each branch. As the sales slips come into the home office it would be comparatively easy to determine the amount of each item on hand at each branch. On the small staple items the maximum and mininmm points would be established, so that as soon as the amount available of a certain item had fallen below a given amount, a clerk at the home office would auto- matically put in a replenishment order. As a consider- 666 PROBLEMS IN EXPORT SALES MANAGEMENT able portion of the material is of large unit value, keep- ing the perpetual inventory records for each branch warehouse would be comparatively easy. Once every month the branch would send a copy of its inventory statement, verified by actual count, in order to permit the home office to correct any clerical errors that had occurred. By using a perpetual inventory the comjoany would have a check on the amount of stores carried on hand. If one branch warehouse was carrying too large an in- ventory, the records would show what items could be reduced. Not only would the resulting inventory be a saving in interest, insurance, and depreciation, but it would also be a saving in rent, heat, light, labor, and other charges. Service would also be improved, since if a sales branch in Italy demanded a steam roller for im- mediate use, it would be a simple matter for the home office to tell from its records whether or not the ware- house in London or Paris had such a machine in its stock. If a steam roller were available at one of these foreign branches, the company could cable the branch manager asking how soon it could be delivered to the job in Italy. At the same time a telegram would be sent to the factory asking for the earliest date on which a steam roller could be delivered at the New York docks. After receiving replies from both the factory and the branch, the home office would be in position to decide which ship- ment would be the more expedient to make and could issue its orders accordingly. The perpetual inventory records in the home office, however, would require the services of a mimber of clerks, and, in addition to the inaccuracies resulting from clerical errors, there would be a delay of at least two weeks between the date the goods were sold and the date the fact was recorded in the home office records, because of the time required for the transmission of sales slips through the mails. The records iji the home office might show that a tractor was on hand in the Paris branch warehouse, when as a matter of fact it had been sold ten EXPORT SALES CONTROL 667 days previously. Furthermore, replenishing orders auto- matically on small staple articles as soon as the agreed minimum limit was reached might unnecessarily increase the inventory on hand in the foreign branches, since the order would not be placed by the branch manager, who would be in position to determine whether or not the stock was really required. The counter-suggestion has been made that the com- pany should not keep a perpetual inventory record but that each branch should furnish the home office with an inventory statement once a month, which would be based on actual count. From this record the export manager would know approximately the amount of any article on hand. Items which appeared in excessive amounts on several successive inventories could be checked with a red pencil to denote the need of inquiry with a view to reducing the amounts on hand. In the main, however, this plan would shift the work and responsibility for inventory to the branch manager. The taking of a physical inventory once a month would be no small task, and because of delay in the mails the statistics given would be obsolete before thev arrived. Problem 158 Jewel Electric Appliance Company — Planning a Budget* Because the domestic sales organization was given priority on all shipments, the export department of the Jewel Electric Appliance Company had difficulty in fill- *For information upon budgetary control, tlie following references may be consulted: J. O. McKinsey, Budpct Making and Control; series of ar- ticles in Administration, January 1921 and succeeding months; Bulletin of the Taylor Society, October 1920, Coordination of Sales with Scietitific* Production; L. Grecndlinger, Financial and Business Statements; Pro- ceedings of the Taylor Society, Spring Meeting, 1921 ; System, May 1920, Description of Budget System of Sherwin-WiUiams Company; Journal of Political Economy, November 1919, Accounting as an Administrative Aid; and the following articles in Printers' Ink — July 28, 1921, A Monthly Photograph of Supply and Demand; and January 20, 1916, Graphic Sales Pictures That Analyse the Business. 668 PROBLEMS IN EXPORT SALES MANAGEMENT ing its orders in the latter half of 1919 and in the first part of 1920; the following year when foreign sales had declined, the export department was asked to dispose of surplus stocks consisting of $27,500 worth of 8, 9, 10, and 12-inch electric fans, $17,300 worth of electric fiat irons, $14,800 worth of electric heaters and $15,450 worth of miscellaneous electrical items. In January, 1922, the management was berating the production department for piling up an inventory of $56,000 in excess of the orders received for future delivery. At the same time the treasurer was handicapped because credit extensions had not been considered sufficiently in estimating the amount of capital required to do business in South America. In May the export department, being unable to secure prompt shipment of electric heaters to Buenos Aires, lost two $3,000 orders to a competitor. When faced by a similar difficulty a prominent steel products manufacturer adopted the following system of budgetary control in order to secure coordination of the sales, production, and financial programs: Inasmuch as conditions differ in each country and fre- quently vary in different sections of the same country, the first step is to divide the foreign territory covered by the company's salesmen into districts having approxi- mately the same population and living under the same general conditions. The foreign sales account tells the export manager what his best records have been, not only in each country, l)ut by salesmen and customer sales, and by commodity. It is therefore comparatively easy to determine the sales by commodity for each district. With the records of past sales as a guide, an estimate is made by districts of the sales of each commodity for the next six months, modified by existing business con- ditions. This estimate is then divided according to quar- ters. As not infrequently the demand is seasonal, it is not sufficient to inform the production department of the total amount of each commodity required by the export department for the entire year. The total amount re- quired for each commodity is therefore determined by quarters, an allowance being made for length of time EXPORT SALES CONTROL 669 required for transportation to the foreign country, and the following reports submitted to the production de- partment for its approval: FIKST QUARTER 19 Items Sales for a Estimated Esti- Esti- Amount Estimate of correspond- sales for mated mated to be probable ing period the first inven- inven- manu- special and of last year quarter of tory de- tory on fac- rush order the pres- sired hand tured in addition ent year at end begin- by pro- to estimated of ning of duc- quantity quarter quarter tion de- part- desired - ment This estimate is not filled out in dollars and cents but in units, in order to avoid any danger of misunderstanding because of fluctuating price conditions. This schedule, together with the schedule for the do- mestic sales department, goes to the production depart- ment to be modified, if necessary, according to production facilities available; the general manager then holds a conference with the heads of all departments. Perhaps it may be advisable to enlarge the plant slightly to take care of additional production, or it may be possible to contract part of the work in other plants. Again, the domestic department may suffer a serious hardship if certain products on its schedule are curtailed. Or it might be found advisal)le, in order to balance the produc- tion of the plant and utilize all machinery and processes to full capacity, to manufacture certain commodities in excess of the amounts called for on the schedule, with the intention of having the export department dump this material on the foreign market at whatever price it will bring. All these points must be taken into consideration 670 PROBLEMS IN EXPORT SALES MANAGEMENT before final approval can be given by the general man- ager. Having estimated the amount of the product which can be sold, the next step is to determine the amount of money required to finance these shipments in each district. If all shipments were made cash against documents in New York, this amount could be easily estimated, but much of the company's business is done on a credit basis. Even if a deposit is required in advance with the balance covered by a sight draft, payment against documents, considerable time must elapse before the company re- ceives its money. In the case of Cuba, two or three weeks may be sufficient to cover the time consumed from the date the papers are sent out from New York and when payment is received, but in dealing with Buenos Aires or Sydney, Australia, a much longer period must elapse. The buying customs of different peoples must be also taken into account. In England at one period the com- pany found it was the general policy in buying steel forms to pay cash against documents, while in China, on the same commodity, 30, 60, or possil^ly 90 days' credit was necessary. Not only does the season affect the buying period, but it also affects the paying period. In Brazil the buying peak may come while the cotfee crop is being grown, but payment can hardly be expected until the coffee beans have been picked, prepared for market, sold, and the payment received. Even though the terms agreed upon by the buyer and seller may specify pay- ment in 30 or 60 days after acceptance, payment is not assured, for an extension may be requested because of unfavorable exchange rates, poor business conditions, or for many other reasons. As frequently these requests cannot be refused, an allowance must be made, based on past records, modified according to rates of exchange, Imsiness conditions, crop prospects, and the political and financial condition of the country, for all these factors have their effect upon the quickness of securing payment. These same factors aifect the allowance which must be made to cover bad debts. EXPORT SALES CONTROL 671 The budget for expenses is made out based on the esti- mate for salesmen's salaries and expenses, the salaries of the office force, and the other charges, such as rent heat, light, communication, office supplies, and other ex- penses. As far as possible this expense estimate is dis- tributed to each district in order to determine the amount of profit which the estimated business will produce. These estimates of the export department, together with the estimates of the domestic sales department, pro- duction, and administrative divisions, are submitted to the treasurer, who decides whether or not they can be met. If they cannot bo met he makes recommendations as to where the budget should be pared down, based on the probable effect on profits. He must also decide whether the company's need for capital is to be met by borrow- ing from the bank, or by discounting the drafts of its customers. In case the latter method is selected, care must be taken that a reserve or additional lines of credit are available to reimburse the banks on customers' drafts which have been discounted but which were dishonored upon presentation for payment. Final adjustments and approval of the budget are made by the general manager and the president. Although the budget is made out six months in advance, each quarterly budget is reapproved just prior to being put into effect. Even after the budget has been put into effect, adjust- ment must be made from time to time to take care of un- foreseen conditions. This is particularly true in a rapidly changing market. This plan of budgetary control* used by the steel com- pany has been carefully examined by the president of the Jewel Electric Appliance Company as a possible solu- tion for the present difficulties faced by his company. The president, however, is dubious about adopting the proposed scheme because of its complicated nature. He explained his position as follows : *Further information on budgetary control can be secured from the articles by J. O. McKinsey in Administration, vol. 1, 1921. 672 PROBLEMS IN EXPORT SALES MANAGEMENT "Our company is small and has only three salesmen in the foreiorn field. Althouuh we receive some additional orders through commission houses, our foreign business is not large. The same situation holds true in the domestic market where we have a good many more salesmen. Of course, we have ac- curate records of all our sales, but as each of our salesmen covers several countries it would be difficult to split each territory up into districts where the same conditions prevail. At present one salesman covers the West Indies and Mexico, another the north- ern and western coast of South America, and a third, Brazil, Uruguay, Paraguay, and Argentina. "At the present time our greatest difficulty is in meeting competition. It seems to me that the budgetary plan of the steel company makes no provision of modifying these estimates because of competition. In fact, I doubt seriously if this would be feasible since it is impossible for us to plan on our competi- tors' actions. On the whole, although I am favorably impressed with the budgetary plan which has been described, it seems to me to be too complicated and too unwieldly to be placed in operation in the Jewell Electric Appliance Company. I would be glad, however, if some modified plan of this type could be devised which would meet the needs of a small company." GENERAL PROBLEMS OF EXPORT MANAGEMENT Any consideration of problems of the export manager will indicate that certain problems are of such great im- portance or of such general application that they will be decided not by the export manager alone, but by the ex- port manager in consultation with the general officials including the board of directors and the president. Ac- tion upon some of these questions must be referred to administrative officials because it involves other depart- ments— for instance, a policy of extensive credit grant- ing upon open credit is of extreme significance to the financial departments. likewise, the administration will always decide wiietlier export trade shall be undertaken or not. Often it will, by the limitations which it imposes, determine the method of distribution. More frequently GENERAL PROBLEMS 673 than not, it is the administration — including the higher officials and the board of directors— that detorinines^the establishment of branches. In short, the administration will reserve the right to act upon major policies. There are also the broad policies of economic policy regarding foreign trade, which are both directly of interest to the export department and indirectly of interest to the whole business enterprise and to every business enterprise in the community. National policies, such as those embodied m the tariffs, profoundly affect the foreign trader. The exporter and importer daily come in contact with tariff problems. The policy of a concern with respect to tariffs has its effect first of all upon the competitive ability of the exporter— it has many more detailed results with respect to documentation, packing, and the like The importer is affected directly by the domestic tariff, both by the tariff itself in its effect upon importation of foreign goods and in its effect upon foreign nations by retaliation. The exporter is likewise aft'ected bv the domestic tariff', the effect of which is to curtail imports and therefore curtail foreign buying power. Further- more, domestic tariffs may lead to retaliation, in which case the ability of the American exporter to compete in a foreign market is reduced. Sectional and local legis- lation, local ordinances, and the like also have their in- terest for the foreign trader because in carrying on transactions in a foreign country, he must complv with the laws of two jurisdictions. He finds that in some countries commercial disputes, which are bound to occur are adjudicated by local courts. In other countri-es par- ticularly those which are very weak politically, commer- cial disputes will be handled by our own courts or by courts of other nations because of the existence of courts with extra-territorial jurisdiction. 674 PROBLEMS IN EXPORT SALES MANAGEMENT Problem 159 Myers & Company — Continuing of Foreign Trade Myers & Company manufacture insulated copper wire and cable used for electrical purposes. Their product varies from the small insulated wire intended for portable lamps, to the heavy triple armored ocean cable such as is used off the Rock of Gibraltar where the action of the waves on rocky reefs causes even the most protected cables to become useless after two or three years. The company's annual volume of business is about $4,300,000, of which $350,000 is made up of exports. In its early development the company exported little, but during the World War it began accepting foreign orders. At first shipments were always accepted and paid for promptly by the foreign customers, but later the company had some difficulty in securing acceptance and payment for the goods after they had been shipped. Usually foreign orders of this company were handled through a New York bank having branches in the country to which the goods were being sent. This bank assumed the responsibility of making out all the papers. In most cases a 60-day or 90-day draft accompanied the docu- ments. As long as the exchange rates remained some- where near par, these drafts were not only accepted by the foreign buyers but frequently were paid within a short time after the goods arrived, so that the purchasers could avail themselves of the cash discounts offered. When the exchange of most of the foreign countries was at a dis- count, 'however, the foreign buyers had more and more difficulty in meeting their bills and in several instances the drafts were not paid after they had been accepted. This meant that the customer had possession of the mer- chandise and Myers & Company held a dishonored acceptance. In other instances tlie goods were not ac cepted after they had arrived. Such a condition prevailed in Belgium. For two or three years a Belgian firm had been l)uying electric wire and cable from Myers & Company. This customer had GENERAL PROBLEMS 675 always honored his drafts, frequently claiming the dis- $lo,000 worth of high-grade wire. Very elaborate tests were required and the plant was put to considerable expense to turn out the order. On July 1], when two- thirds of the order had been packed in cases and was ready tor shipment, Myers & Company received a cable- gram asking if immediate shipment was to be made Ihe company replied in the affirmative and the entire shipment was sent off two days later. On Julv 20 another cablegram arrived cancelling the order. Since' the wire was manufactured according to foreign stand- ards. It was of no value in the domestic market The company was unable to find another foreign purchaser and the wire is still m storage in Brussels. A slightly different situation occurred in Portugal a tew monthslater when payment was refused on $13,000 ^.jorth of wire which had been ordered bv the firm of Moro Gomezetto. This firm had alwavs paid its bills promp ly in the past, but when the rate of eLhange w^ against It al hough it received the wire and accepted the di^ait. It failed to make payment when the draft was These instances are more or less typical of what has Myers & Company have thousands of dollars worth of ^vire made according to foreign standards, stored in warehouses m foreign countries. On other lits of wii4 which are in the possession of custom'ers, the firm holds' drafts which have been dishonored. Fo^ these reason he company is considering the advisabilitv of discon tmumg its foreign trade. ' In the United States it would be possible to turn over ^^^' 'V:' ""'in '' '''''-'' «^-^ ^--^ ^f ad- justment. When they have resorted to litigation in foreign countries, however, Myers & Company have usually found that the lawyers sympathized wtl ttlr :Str^s:-anir "^ --' ^-^^-^ -- 676 PROBLEMS IN EXPORT SALES MANAGEMENT Several times the company has reshipped the wire to other countries having the same standards for electric cables. Almost every time, however, the rate of exchange was against the United States and in only three instances was the company able to dispose of its product even at big reduction after paying additional freight rates and storage charges. If the company decides to continue its foreign trade it must discontinue all exporting temporarily until the rates of exchange are more favorable, at which time the shipments now being held in foreign countries can be disposed of- at a price somewhere near the cost of manu- facture. This step would require the payment of large sums of money for storage charges, however, and prob- ably no profit could be realized on the sale of these goods. At the same time, such a policy would leave the field open to competitors and in all probalnlity foreign manufac- turers would have things so well ''sewed up" that it would be difficult for the firm to regain its market. It is proposed therefore to discontinue the export busi- ness completely. Myers & Company originally manu- factured electric wire and cable only for domestic use. This business is still of sufficient volume to enable it to maintain a profitable business without entering foreign markets. Its foreign sales have been but a small pro- portion of its total and it has never considered them important enough to warrant the establishment of a sales- force in the foreign field. Its export shipments must be treated as special orders because of the different standards allowed in the coun- tries abroad. The Board of Fire Underwriters has laid down definite specifications for insulated wire used for electrical purposes in the United States. For example, on all No. 14 copper wire they require 5/,')2 of an inch insulation. The requirements are also definite as to what constitutes satisfactory insulation and the size of wire required for specific loads. In most foreign countries, however, the requirements are not so strict and insu- lation of approximately 4/32 of an inch on No. 14 cop- GENERAL PROBLEMS 677 per wire is accepted as satisfactory. Consequently, if Myers & Company are to sell in the foreign market, they must manufacture insulated wire according to these for- eign specifications ; for if American standard ^\dre were exported the price would be too high to enable the com- pany to compete with foreign manufacturers. Should Myers & Company give up its export business? Problem 160 Independent Woolen Export Corporation — Liquidating of Export Business The Independent AVoolen Company was organized to secure the proper distribution of the product of a num- ber of independent woolen mills in the United States. For a number of years it confined its activity to the United States and Canada, but about 1912 it beg-an send- ing some woolen fabrics to South America. With the outbreak of the world war in 1914, the greatly increased demand for woolen cloth in Europe caused the export business of the Independent Woolen Company to become more and more important. The amount of exports finally became so large that it was difficult for the com- pany to handle its foreign business properly. So many operating costs apphed to both the domestic and foreign business that with the existing organization it was prac- tically impossible to determine the exact costs and profits resulting from the export business. Early in 1916 it was decided to organize the Inde- pendent Woolen Export Corporation as a subsidiary of the Independent Woolen Company to handle the hitter's export business. This new organization was capitalized for $15,000, but it soon became evident that this sum was too small and later in the year the amount of capitali- zation was increased to $150,000. The corporation es- tablished branches in London, Paris, Eio de Janeiro, Buenos Aires, and Santiago. It built up a large force of 678 PROBLEMS IN EXPORT SALES MANAGEMENT American salesmen, sending them abroad after six to nine months of training. The foreign sales volume of the export corporation increased rapidly, and three years after the date of its founding the balance sheet showed that the corporation had undivided profits of $530,000, a surplus of $290,000, and a capitalization of $150,000, giving a total of a little less than $1,000,000 available capital. Although trade with Europe fell oft" Avith the termina- tion of the war, export sales to South America continued to increase. In the spring of 1920 the corporation had on its books foreign orders amounting to more than $18,000,000, but by May so many cancellations had oc- curred that the treasurer held up over $4,000,000 of orders pending confirmation. The subsequent cancellation of a large proportion of these orders proved that he had shown good judgment. The situation was further com- plicated by the fact that the Independent Woolen Export Corporation has rediscounted with the banks several milion dollars' worth of drafts which had been accepted by South American customers. When a number of these customers failed to meet their obligations, it Avas neces- sary for the corporation to borrow almost a million dol- lars to reimburse these banks. In the summer of 1921, with exchange rates and low production costs favoring the importation of European goods into South American markets, the competition of German and English woolen mills was very keen. The prices asked by the mills of the different countries for a yard of the same grade of woolen cloth were as fol- lows : American $2.50' English 1 .75 German ■.. 1.00 In the domestic market, when the company has suf- fered a loss one year, it has usually been possible to make up this loss the next; but with Kjiiglisli and German competition in the foreign field, the directors of the Inde- GENERAL PROBLEMS 67» pendent Woolen company could not see any chance of re- gaining their position in the market or recovering their losses in the near future. Business conditions in Latin America continued to be unsettled. The Independent Woolen Company had been organized primarily to dis- tribute the products of its mills in the United States and for almost a year and a half it had lost money in the for- eign field. Early in the fall of 1921 the directors of the Independent Woolen Company, believing that the time had come to get out of the foreign field, ordered the dissolution of the Independent Woolen Export Corpo- ration. Steps were taken immediately to wind up the affairs of this subsidiary corporation, foreign branches were discontinued, the sales organization disbanded, and by February 1, 1922 the liquidation had been completed. Was this the proper time for the liquidation of the In- dependent Woolen Export Corporation? Problem 161 The Baldwin Locomotive Works — Pushing Foreign Trade During Depression The American Locomotive Company in 1921 was oper- ating at 10% of capacity on domestic orders; the Bald- win Locomotive Works was operating at 30% of ca- pacity on domestic and foreign orders. The president of the latter company had made a special effort to obtain foreign business during the depression of 1921. These two companies manufacture the same class of products, have about the same capacity, and are capital- ized approximately on the same basis. American Loco- motive has $25,000,000 each of preferred and common stocks and $],9I)2,()()0 underlying bonds, a total of $51,932,000. The Baldwin conipany has $20,000,00 each of preferred and common stocks and $12,400,000 bonds of its own and Standard Steel Works, a total of $52,400,000. 680 PROBLEMS IN EXPORT SALES MANAGEMENT In 1921, in the midst of the worst depression in its history, the Baldwin company in order to keep its plants running contracted for a large volume of foreign busi- ness— Polish, Mexican, and Argentinian — on long-term credits. It had on its balance sheets for some time nearly $7,000,000 in notes of the Polish government. Later it extended a $6,500,000 credit to Argentina and another of several millions to ]\Iexico. The management of the American Locomotive Com- pany, on the other hand, took the position that it was time to conserve cash and prepare for a revival in domestic demands. It avoided extending credits, ex- cept on what appeared to be gilt-edged security. In 1921 its current assets consisted mostly of United States Government obligations. New York City notes, and about $5,000,000 Belgian treasury notes. On these it re- ceived interest more than sufficient to meet its preferred dividend. The profits of the Baldwin company for 1921 were estimated at $23 per share on the common stock; the profits of the American Locomotive for the same year were estimated as being about half as large as those of the Baldwin company. The securities of both companies are listed on the New York Stock Exchange. The common stocks of both com- panies generally advance and decline together, but Bald- win conmion generally moves at a more rapid rate. For example, in 1919 Baldwin made a high of 156 and in 1921 a low of 62, a loss of 94 points or 60%. In the same period American Locomotive made a high of 117 and a low of 78, a loss of 44 points or 37%. Should the American Locomotive Company have fol- lowed tlie policy of the Baldwin Locomotive Works in 1921? GENERAL PROBLEMS 681 Problem 162 GiLMAN Company — Establishing a Canadian Mill The Gilman Company is considering establishing a mill in Canada for the production of roofing paper and slate-covered shingles. Building construction in certain sections of Canada, as in many other new countries, is of a temporary type especially adapted to the use of the Gilman Company's product. The population of Canada, as compared with that of the United States, is small, but it is growing rapidly and the western provinces par- ticularly are being built up by a wide-awake and progres- sive people. As many of these people came from the United States and are already famihar with Gilman Company's products, it has been comparatively easy to introduce them and the managers of the company an- ticipate a good future for their Canadian business. For a numl)er of years the Gilman Company has oper- ated factories in the United States, both on the eastern seacoast and in the Middle West. Its rooting has a high reputation for quality and economy of service. Its prices are comparatively low and the company is undersold in the local market only by competitors with an inferior and cheaper product. The firm has developed some foreign trade in Mexico, AVest Indies, and Central America, where the construction of warehouses, barracks, and sim- ilar buildings by American companies is of a temporary type, like that frequently found in our own country. Trade has also been developed with Australia, New Zea- land, and to a limited extent with India and the other British colonies. In developing its business in Canada the company has been selling direct to wholesalers through its own salesmen and has been shipping most of its Canadian orders from its eastern mills. Canadian business has grown until the annual sales are a little less than $300,- 000. The tariff, however, is so high as to practically wipe out all profit from such transactions. The other British 682 PROBLEMS IN EXPORT SALES MANAGEMENT colonies, with which the company does a business of ap- proximately $160,000 a year, give a preferential duty on goods from Canada. The company is, therefore, con- sidering building a Canadian mill in order to increase its profit on this kind of business. Building costs are comparatively low and a factory site can be secured at a desirable railroad center for a reasonable price. With a return of prosperity building costs may go up and the demand for roofing be greatly increased. They hesitate to build a mill, however, since it is estimated that in order to operate efficiently and show a normal profit a mill should have an annual pro- duction of approximately $650,000 w^orth of roofing. It would probably take nine or ten months to build the mill. The managers are uncertain as to whether Canada and the other British colonies will be able to absorb the addi- tional amount of product by the time the mill is put into operation. Although the company has ample capital and its mills in the United States could carry the Canadian factory even though it did not make a profit, the managers are not enthusiastic over saddling their present plants with such a burden. Should the Oilman Company establish a mill in Can- ada! Problem 163 The Kane Shoe Company — Discontinuing Canadian Plant The Kane Shoe Company is considering the advisa- bility of discontinuing its Canadian factory. Tliis plant was established in Canada several years ago in order to evade the (Canadian tariff" laws and enable tlie com- pany to sell its shoes in ('aiuidiau territory in competi- tion with local manufacturers. A substantial sales vol- ume has ])een develo|)ed, and the shoes have l)ecome well known in (^anada through extensive advertising. The company has experienced some difficulty, however, xu GENERAL PROBLEMS 683 operating- its Canadian factory efficiently, and, although it has built up a substantial volume of sales, the percent- age of profit realized on this business has not been so large as was expected. The Kane Company has built its reputation on wom- en's style shoes of good quality and ^vorkmanship. It sells its entire product through its own salesmen to retail stores. Kane Company shoes are well known throughout the United States, and the company has exported to a certain extent to South America and Europe. In addi- tion to its Canadian plant, the company has a large fac- tory in Pennsylyania and a smaller one in New Jersey. In operating its Canadian factory, the company has experienced difficulty in securing workers who are cap- able or willing to maintain the same standard of quality that is maintained in the Pennsylvania factory. Because the population of Canada is much smaller than that of the United States and the demand for style shoes is con- sequently less, the Canadian factory is comparatively small. For this reason it has difficulty in operating as efficiently as a larger plant. Since the headquarters of the Kane Company are at the main factory in Pennsyl- vania, another obstacle to overcome in the capable ad- ministration of the Canadian plant is its distance from the home factory. It has been estimated that if the Ca- nadian factory were sold and the money used in increas- ing the production and sale of the company's product in the United States, the profits of the Kane Company on this amount of business would be substantially in- creased. In developing its Canadian business the company has spent a large amount of money. It has built a modern factory and developed a capable salesforce. I^or a num- ber of years the firm has been advertising its shoes in the eastern half of the Dominion and has succeeded in build- ing up a good reputation for its name and trade-mark. If the company decides to sell its factory it must do so at a loss, and in addition will lose some of the good-will that has been developed for its product, since the tariff inter- 684 PROBLEMS IN EXPORT SALES MANAGEMENT poses a serious difficulty iu competing with Oanadiau factories. The Canadian population is growing; other British colonies are looking with favor toward importing shoes from Canadian firms ; and there is a possibility that the Canadian business will develop much more rapidly in the future. By closing its Canadian factory, the company would have an opportunity to secure a royalty for the use of its name and trade-mark by a Canadian firm. This latter firm is small but progressive, and would be a sat- isfactory representative for the Kane Company. If the Kane Company accepts this offer, however, it must agree not to manufacture or sell its shoes in Canada. In return for the Canadian rights to the Kane Company's name and trade-mark this Canadian firm is to agree to manu- facture shoes according to Kane standards and specifi- cations, so that the good-will of the Kane Company will be maintained. Although the royalty offered w^ould not equal the percentage of profits the company now receives from its Canadian business, it would to a certain extent compensate it for the expense it has undergone in build- ing up its Canadian trade. Should the Kane Company discontinue its Canadian factory! If so, should it accept the offer of the Canadian company to pay a royalty for the use of the Kane com- pany name and trade-mark in Canada? Problem 164 The Rockford Company — Government Action in the Export Field The Rockford Company was organized by the manu- facturers of cement, lumber, and builders' supplies to further the extension of export trade in these prod- ucts. The company has an extensive organization of salesmen in South America, Mexico; West Indies, Philip- pines, Japan, China, and Canada. Its investment in GENERAL PROBLEMS 685 the United States and abroad runs into several millions of dollars and the cost of operation of its foreign depart- ment is close to $4,000 a day. This company sold large quantities of cement and other construction supplies to the allied governments for building work during the war. It is now attempting to secure the orders for most of the big construction jobs in the countries in which it is rep- resented. Although German competition is felt to a considerable extent, the principal grievance of the Rockford Company is against the action of the United States Government in scattering broadcast information on large foreign con- tracts. For example, when the Government's commer- cial agents in China learn that the Chinese Government is about to construct several hundred miles of concrete road, this information is at once sent to the department in AVashington where it is passed on to all cement manu- facturers in the country who desire this information. The object of the Government in adopting these tactics is to promote the foreign trade of American industries and assist them in meeting the competition of Germans and other foreign houses. According to the president of the Rockford Company, what actually happens, when this plan is put in operation, is that a company which has never expended one dollar in the development of the foreign field and which has a very small overhead puts in an extremely low bid for the foreign order in order to dispose of its surplus abroad. The Rockford Company is unable to meet this type of price competition without selling its product at a point far below that which will enable it to show a profit. The result is that American companies without connections abroad are sometimes able to ''skim the cream" of the foreign business. As the president explained, the Rockford Company does not object to the Government's giving information on large foreign contracts to legitimate competitors of the firm wiio also have spent large sums of money in de- veloping the foreign field. It does object however to having a company, which has never spent any money in 680 PROBLEMS IN EXPORT SALES MANAGEMENT furthering American interests abroad, bid on a large contract with government aid and cut the price below the figure at which the Rockford Company and its legitimate competitors can afford to sell. The president considers the present situation as serious, but he is uncertain as to the tactics which his company should adopt. Should it undertake to meet the competition of other manufac- turers having a small overhead and no investment in the foreign field by selling its products below cost, or should it be content with small foreign orders in which there is little interest among concerns confining their activities to the States? If the latter policy is followed, it will un- doubtedly be necessary to curtail the size of the foreign organization of the Rockford Company to a great extent. BIBLIOGRAPHY Agger, E. E. aughinbaugh, W. A. Backer Edward L. Bastable, C. A. Benn, Ernest J. P. Brown, H. G. Business Training Corporation Calvert, Alfred Cherington, P. T. Clare, G. Clerget, Pierre Organized Bank- ing. Selling Latin America. Export Technique. Theory of Inter- national Trade. The Trade of To- morrow. International Trade and Exchange. 12 small volumes comprising the Course in For- eign Trade (listed under authors' names) Shipping Office Organization, ■ Management and Accounts. Advertising as a Business Force. The ABC of Foreign Exchange. Manuel d'Economie Commerciale. 687 New York, Holt, 1918. Boston, Small, Maynard, 1915. New York, Busi- ness Training Corporation, 1916. London. Macmillan. 1903. New York, Button, 1918. New York, Macmillan, 1914. London, Pitman. Garden City, N. Y., Doubledav, Page, 1913. New York, Macmillan, 1893. Paris, Libra irie Armand Colin, 5 Rue de Me- sieres, 1909. 688 PROBLEMS IN EXPORT SALES MANAGEMENT Cooper, C. S. Crosfield, A. W. E. CULBERTSON, w. s. Day, Clive DeHaas, J. A. De Haas, J. A. De Lima and Santilhano Dewey and Shugrue , Duckworth, Lawrence Dxn)ENEY, Frank M. Eder, Phanor J. Edwards, George H. Einaigl, EUGEN Foreign Trade Markets and Methods. Case and Freight Costs. Commercial Policy in War Time and After. A History of Commerce. Foreign Trade and Shipping. The Organization of Foreigji Trade. Financing. Part I — Financing Foreign Sales. Part II — Banking for Foreign Trade. Banking and Credit. Principles of Marine Law. The Exporter's Handbook and Glossary. Foreign and Home Law. Foreign Commer cial Credits. Handbuch der Export Praxis. New York, Appleton, 1922. London, Pitman. New York, Appleton, 1919. New York, Longmans, Green, 1916. New York, Alexander Hamilton In- stitute, 1919. New York, Ronald Press, 1922. New York, Busi- ness Training Corporation, 1916. New York, Ronald Press, 1922. London, Pitman. London, Pitman, 1916. New York, Busi- ness Training Corporation, 1916. New York, McGraw-Hill, 1922. Wien und Leip- zig, Alfred Holder, 1910. BIBLIOGRAPHY 689 ESCHER^ Franklin FiLSINGER, Ernest B, Ford, L. C. and T. F. Fowler, Rich- ards, and Talbot. Goldsmith, P. H. Gonzales, V, GOSCHEN, G. J. Gow, William GuYOT, Yves Halsey, F. M. Foreign Exchange Explained. Exporting to Latin America. The Foreign Trade of the United States. Export Houses. Part I— The Ex- port Merchant. Part II— The Export Com- mission House. Part III— The Export For- warder. A Brief Biblio- graphij of Books in Eng- lish, Spanish and Portuguese Relati7ig to the Republics Com- monly Called Latin-America, with Comments. Modern Foreign Exchayige. The Theory of the Foreign Exchanges. Sea Insurance according to British Statute. Le Commerce et les Commer- gants. Railway Expansion in Latin America. New York, Macmillan, 1917. New York, Appleton, 1916. New York. Scribner's, 1920. New York, Busi- ness Training Corporation, 1916. New York, Macmillan, 1915. New York, C. F. Hammond & Co., 1914. London, Effing- ham Wilson, 1879. London, Macmillan, 1914. Paris, 0. Doin et Fils, Editeurs, 8 Place de rOdeon, 1909. New York, Oliphant, 1916. 690 PROBLEMS IN EXPORT SALES MANAGEMENT Hauser, Henri Hellauer, Josef Henius, F. Herzog, S. Hooper and Graham Hough, B. Olney Hough, B. Olney HUEBNER, G. G. HuEBNER, G. G. Hutchinson, Lincoln Johnson, Emory R. Johnson and HuEBNER Johnson and HUEBNER Germany's Com- mercial Grip on the World. System der Wel- thandelslehre. The A. B. C. of Foreign Trade. The Future of German Industrial Exports. Import and Export Trade. Ocean Traffic and Trade. Fractical Exporting. Marine Insurance. Ocean Steamship Traffic Management. Panama Canal and Interna- tional Trade Competition. Ocean and Inland Water Trans- portation. Shipping in Its Relation to Our Foreign Trade. Principles of Ocean Trans- portation. New York, Scribner's, 1918. Berlin, Puttkam- mer & Miihl- brecht, 1910. Indianapolis, Bobbs-Merrill, 1920. Garden City, N. Y., Doiibleday, Page, 1918. London, Macmillan, 1899. Chicago, LaSalle Extension Univ., 1914. New York, Johns- ton Export Pub- lishing Co., 1919. New York, Apple- ton, 1920. New York, Apple- ton, 1920. New York, Mac- millan, 1915. New York, Apple- ton, 1911. New York. Busi- ness Training Corporation, 1916. New York, Apple- ton, 1920. BIBLIOGRAPHY 691 Kelly Pub- lishing Co. KiDD, Howard C. MacElwee, R. S. MacElwee AND Taylor McKlNSEY, J. 0. Mahony, Paul R. Margraff, A. W. Marshall, Alfred Martin, C. C. Mathewson, Park Metcalf and Tead Moore, J. T. M. Moore, W. V. Customs Tariffs of the Woi'ld. Kidd on Foreign Trade. Ports and Ter- minal Facilities. Wharf Manage- ment and Steve- doring. Budgetari/ Control. The Export Salesman. International Exchange. Industry and Trade. Export Packing. Acceptances : Trade and Bankers. Personnel Admin- istration. American Busi- ness in World's Markets. Law of Commer- cial Paper. New York. Kelly Publishing Co., 1920. New York. Pren- tice-Hall, 1921. New York, McGraw-Hill, 1918. New York, Apple- ton, 1921. New York, Rouald Press, 1922. New York, Busi- ness Training Corporation, 1916. Chicago, Fergus Printing Co., 1904. London, Mac- millan, 1919. New York, Johns- ton Export Publishing Co., 1921. New York, Apple- ton, 1921. New York, McGraw-Hill, 1920. New York, Doran, 1919. New York, Apple- ton. 1918. 692 PROBLEMS IN EXPORT SALES MANAGEMENT NOTZ AND Harvey Owen, Douglas Owen, Robert L. Patterson, E. L. S. Pepper, Charles M. Poor, Wharton Powell, Ellis T. Pratt, Edward EWING Pratt, Porter, AND Kennedy Preciado, a, a. Rush, Benjamin Savay, Norbert Selfridge, H. G. American Foreign Trade. Ocean Trade and Shipping. Foreign Exchange. Domestic and Foreign Exchange. American Foreign Trade. Charier Par-ties and Ocean Bills of Lading. The Evolution of the Money Mar- ket (1385-1915). International Trade. Export Policies. Part I— Deter- mining Export Policies. Part II— Export Policies Em- ployed in Cer- tain Lines. Exporting to the World. Marine Insurance (Hull). Priiiciples of For- eign Trade. The Romance of Commerce. Indianapolis, Bobbs-Merrill, 1920. New York, Put- nam, 1914. New York, Cen- tury, 1919. New York, Alex- ander Hamilton Institute, 1917. New York, Cen- tury, 1919. Albany, N. Y., Matthew Bender & Co., 1920. London, Pitman. New York, Busi- ness Training Corporation, 1920. New York, Busi- Ness Training Corporation, 1916. New York, McCann, 1920. New York, C. H. Jones & Co., 1918. New York. Ronald Press, 1919. New York, Lane, 1918. BIBLIOGRAPHY 693 Shugrue, Martin J. Slater, J. A. Smith, J. RUSSEL Snow, Chaun- CEY Depew sonnendorfer- Ottel Spalding, W. F. Stephanson, James Stern, Carl W. Stevens, R. W. Taussig, F. W. Taussig, F. W. Todd, J. A. Problems in For- eign Exchange. Dictionary of World's Com- mercial Prod- ucts. Influence of the Great War upon Shipping. Factors in Trade- Building. Die Technik des Welthandels. (2 volumes) Foreign Exchange and Foreign Bills. The Principles and Practice of Commerce. Importing. Stowage of Ships and Their Cargoes. Principles of Economics. (Third edition) Selected Readings in International Trade and Tariff Problems. The Mechanism of Exchange. New York, Apple ton, 1920. Xew York, Pitman, 1912. New York, Oxford University Press, 1919. New York, Busi- ness Training Corporation, 1916. Wien und Leipzig-, Alfred Holder, 1912. New York, Pitman, 1915. London, Put- nam's, 1915. New York, Busi- ness Training Corporation, 1916. London, Long- mans, Green & Co. New York. Mac- millan, 1921. Boston, Ginn, 1921. London, Oxford University Press, 1919. 694 PROBLEMS IN EXPORT SALES MANAGEMENT TOSDAL, Harry R. Vanderlip, F. A. Vedder, C. C. VosE, Edward Neville Westerfield, R. B. Whitaker, A. C. White, Percival Wilcox and RiNES Winter, William Withers, H. Wolfe, Archibald J. Wyman, Walter F, The New England Exporter. What Happened to Europe? American Methods in Foreign Trade. The World's Markets. Banking Principles and Practice. Foreign Exchange. Market Analysis. Encyclopedia of Latin America. Marine Insurance. International Finance. Theory and Prac- tice of Inter- national Trade. Direct Exporting. Boston Chamber of Commerce, 1922. New York, Mae- millan, 1919. New York, Mc- Graw-Hill, 1919. New York, Busi- ness Training Corporation, 1916. New York, Ronald Press, 1921. New York, Apple- ton, 1919. New York, Mc- Graw-Hill, 1921. New York, En- cyclopedia Americana Cor- poration, 1917. New York, Mc- Graw-Hill, 1919. London, Smith, Elder, 1910. New York, Inter- national Book Publishing Co., 1919. New York, Busi- ness Training Corporation, 1916. BIBLIOGRAPHY 695 Wyman, Export New York, Mc- Waltfr F. Merchandising. Graw-Hill, 1922. ZiMMERMANN, Occan Skipping. New Y'ork, Pren- E. W. tice-Hall, 1919. BIBLIOGRAPHICAL FOOTNOTES Furtlier information may be found in the bibliographical footnotes to the following problems : Advertising and Direct-mail Selling. Problems 79 and 82. Banking, Finance and Documentation. Acceptances and bills of exchange — Problem 119. Act of protest — Problem 135. Bill of lading — Problem 153. Credit policy — Problems 23 and 121. Curtailment of credits — Problem 123. Drafts— Problem 119. Documentation of an export order — Problem 138. Extension of credit terms — Problem 122, Filling orders— Problems 138 and 139. Foreign exchange — Problem 119. Insurance of credit — Problem 128. Letters of credit — Problem 130. Management of credits — Problem 126. Dealer Helps. Problem 59. Direct and Indirect Exporting. Advantages and disadvantages — Problem 45. Organization for — Problems 4 and 5 ; committee type — Problem 7 ; location of department — Problem 1. Districting of Export Sales Territory. Problems 32 and 34. Economic Theory of Foreign Trade. Chapter I, page 1 ; Problem 64. Export Agents, Exclusive Agencies, and Agency Contracts. Agency contracts — Problem 60. Exclusive agency — Problems 56 and 59. Export agents — Problem 51. 696 PROBLEMS IN EXPORT SALES MANAGEMENT Export Combinations and the Webb Law. Problems 10 and 11. Export Manager. Problem 17 ; combination manager — Problems 12 and 49. Export Merchants and Commission Houses. Problem 45. Export Sales Campaigns. Problem 34. Export Salesmen. Advance territory work — Problem 103. Equipment — Problem 104. Management — Problem 106. Routing — Problem 103. Selection — Problem 94; application blanks — Problem 96. Training — Problems 99 and 100. Export Sales Quotas. Problem 33. Fairs and Expositions. Problem 78. Foreign Branches. Problems 109 and 111. Freight Forwarders. Problem 147. Freight Rates. Problem 152. House Organs. Problem 88. Marine Insurance. Problem 152. Market Analysis. Problem 25. BIBLIOGRAPHY 697 Motion Pictures. Problem 89. Packing. Problem 140. Parcel Post. Problem 142. Price Policy. Problems 64, 67 and 68. Product Analysis. Problem 35. Research and Statistics. Problem 25. Sales Control. Problems 155 and 158. Trade-marks. Problem 42. 700 PROBLEMS 1 EXPORT SALES MANAGEMENT Cooperative Export A iciations — 10, 62, 65, 69, 73, sr. ; Credit In- terchange—492, 53b 539, 540, 541. Correspondence — 85, 34i See also: Advertising — Direct ail ; Cata- logs; Parcel Post; anslations. Credentials of S a 1 c s if n — See : Salesmen, Equipment . Credits and Collettiui -456-545; Foreign Credit Iiil'i ange Bu- reau, forms of — 53^ 539, 540, 541; Reports— 499, -i 516. In- surance of — 496; ^^. igement — 95, 354, 445; Poli. v H-46, 298, 351, 602, 670; Rese.i r.— 101. Cuba— 154, 435, 452, 4^ 504, 554, 670. D Dealer Helps— 17, i'4r,, i34, 336, 338. Delivery — 546-655. Denmark— 329, 428. Department Stores — 25. Discounts— 18, 301, 303, 72. Distribution — 15, 16, 19064; Costs — 439; Direct— 201, 34, 321, 434, 439, 484; Use of Uesmen — 321, 330, 434, 683. Districting Sales Terrilry — 148, 158. Dock Receipt — 605. Documentation — 546-655. Drafts — See: Financing lipments. Drugs— 279. E Ecuador— 324. Electrical Equipment— 37170, 384, 394, 572. Europe— 26, 305, 336, 41 7 t35, 473, 485, 572, 576, 677, 683. ^]?~2U, 327, 374, -395, 445, 519, 'ptical Goods— 340. Packing and Marking— 554 558 •anits-39, 347, 391, 402, 415, 420, 'aper, and Paper and Cardboard '?ir f-fT^*' ^^' 154, 184, 211 216, 274, 345, 387, 406, 439 450 ^04, 509, 512, 552 ' ' 'araguay— 159, 327. 'arcel Post— 559 ;eru-l59, 324, 327, 558, 578 lulWmes-35, 206, 342, 464, 485, I'liotographic Materials— 5ee • Cam poi:;rd-^68o''''*'^"p'"^ ""pp^-^- " :\i Machinery— 188 ; P a c k i n g— 1 2 7 562; Printing— 87, 184, 452- Tex- tile—177, 276, 350, 473; Wood- •"orking — 342. Mailing-lists— 325. See also : Adver- tising — Direct-mail; Correspon dence; Sources of Information Manufacturing for Export— . O Office Supplies — 184, 227 ''eO 3''3 336, 417, 428, 496. ' " ' Oils— 234, 327, 374, 395, 44.5, 5] 9 579. Optical Goods — 340. Packing and Marking— 554, 558, 559, 562, 566, 568; Inspection of Cargo— 564, 579. Paints--39, 347, 391, 402, 415, 420 422 ' ' > ) Paper, and Paper and Cardboard Novelties— 34, 51, 154, 184, 211, 216, 274, 345, 387, 406, 439, 452 454, 509, 512, 552. Paraguay— 159, 327. Parcel Post — 559. Peru— 159, 324, 327, 558, 578. Philippines— 35, 206, 342, 464, 485, 684. ' Photographic Materials— See; Cam- eras and Photographic Supplies, Poland— 680. Porto Bico— 223. Portugal — 675. Power of Attorney— See: Salesmen, Equipment of. Price Maintenance — 18, 305, 306. Prices and Price Policy — 17, 18, 265-309; Adjustments— 274, 308, 510, 528; Competition — 270, 307; FLxing by Branch Managers — 449, 452; In Foreign Currency — 270, 279; Levels— 269; QuotJtions— 290; Resale— 18; Uniformity— 295, 300, 307; Variation by Sales- men— 300. Product Analysis and Policy — 15, 164, 165, 170, 172, 173, 357. Provisions — 76, 188, 245. 702 PROBLEMS IN EXPORT SALES MANAGEMENT E Razors— 116, 165, 229, 305, 434. Relations Between Export and Other Departments — Advertising — 7 ; Credit— 7, 58, 474, 476, 480; Domestic Sales— 8, 9, 87, 90, 416 ; Production— 92, 97, 416, 668; Re- search—7 ; Traffic— 8. Research and Planning — 10-13, 100- 161. Retailing— 25, 231. Rubber Goods— 56, 69, 492, 576. S Sales Campaigns — 158, 406. See also : Advertising. Sales Contest— 420. Sales Control— 656-672. Sales Manual— 424. Salesmen, Compensation of — 370, 385, 390, 402, 404, 424. Salesmen, Equipment of— 409. Salesmen, Management of — 359-424, 659; Advance Territory Work— 347, 406; Expenses — 370, 394, 406 424, 435; Visits to Home Office— 418. Salesmen, Reports of — 423, 661. Salesmen, Routing of— 158, 423, 661. Salesmen, Selection of— Application Blanks— 374, 385-389; Languages, Knowledge of— 368, 370, 392; Native vs. American — 387; Quali- fications—360, 365, 370. Salesmen, Stimulation of — 420. Salesmen, Training of— 371, 391, 394. Sales Methods— 310-358. Sales Promotion— 347, 679. See also: Advertising; Sales Campaigns. Sales Quotas— 154, 659. Sales Records— 656-672. Samples — 313. Scandinavia— 329, 428, 439, 464. Selling Process— 19, 20. Service and Repairs — 177, 180. Sewing Machines— 306, 334, 440. Shingles and Roofing Paper— 48, 84, 554, 566. Sources of Information — 10, 11, 103- 108, 125-127, 459, 477, 480, 484, 656. South Africa— 35. South America — 25, 36, 131, 159, 260, 274, 326, 385, 391, 422, 473, 493, 496, 510, 559, 562, 572, 576, 578, 659, 668, 677, 683, 684. See also : Latin America ; also vai'ioits countries of South America. Spain— 430, 435, 665. Standardization — See : Product Analysis. Steam Fittings and Plumbing Sup- plies—59, 148, 201, 220, 443, 583. Steel Products- 353, 400, 500. Stores System — 664. Style Element— 139, 171. T Tariffs, Duties, etc. — 430, 681. Taylor System — 55. Terms of Sale— 265-309, 456-545, 579 ; f. 0. b. vs. c. i. f .— 276, 279, 526. Textiles— 35, 90, 95, 175, 205, 224, 240, 257, 326, 409. Tires — See: Automobiles and Ac- cessories. Toilet Preparations— 93, 301, 303. Tools— 470; Carpenters '—65, 295; Garden— 62; Machine — 321. Trade-marks, Patents and Copy- rights—15, 184, 683. Translations — 343. See also: Cata- logs ; Correspondence. Typewriters— 114, 172, 251, 261, 448. Uruguay — 327. Venezuela — 324. U V W Wall Board- 554, 585. Warehousing— 439, 440, 566, 582, 664. West Indies— 493, 496, 519, 659, 681, 684. Wholesalers— 227, 231. Wine Shooks— 290, 526. Yarns— 182. UNIVERSITY OF CALIFORNIA LIBRARY Los Angeles This book is DUE on the last date stamped below. Form L'.)-Series 444 UC SOUTHERN REGIONAL LIBRARY FACILITY AA 001 008 311 Mm t f^: m m f§. m.: WW w m'^f^j^'